Anti-Money Laundering: Federal Rule Coming to Track Real Estate Cash

The federal government wants all-cash home buyers to be easy to find.

The Financial Crimes Enforcement Network (FinCEN) is part of the U.S. Treasury Department. FinCEN has proposed a new reporting rule. It wants real estate professionals to submit forms with details about cash sales when homes are sold to legal entities — like LLCs and trusts.

The goal? Making it hard for criminals to hide behind legal entities when they launder money from their crimes. The rule would make it much easier for investigators to track down people involved in the transfers of homes for cash.

The rule would not require the reporting of sales to individuals. It would affect some residential real estate investors who plan to make cash offers. But it actually matters to everyone. Take a Look.

Why This Proposed Rule Matters to All of Us

Money laundering is all about taking the profits from crimes, and putting them into a legitimate asset (homes, in this case) to shield those profits.

Of course, plenty of all-cash real estate investments are above-board. But all-cash deals, because of their anonymity, are the most vulnerable to money laundering.

People with money to launder make it that much harder for the rest of us to compete for any homes on the market. All-cash offers are notoriously hard for regular buyers to compete with.

So, by buying real estate with cash, money launderers help to pump up already heated real estate markets.

How much does this impact home prices? We can’t say precisely. But the government points to a Canadian study showing that money-laundering investors inflates listing prices somewhere from 3.7% to 7.5% in Canada.

And so, for all of these reasons, FinCEN is coming up with a new form — the Real Estate Report — to collect information.

Data the Proposed Real Estate Report Forms Would Collect

The government wants a detailed bundle of information on a cash purchase. Its proposed new form would gather a number of facts. The reporting person would state names and home addresses (We know where you live!) for those who signed documents on behalf of both sides of the home purchase.

The proposed Real Estate Report would:

Identify the person who’s reporting, together with their name and business address. Who steps up to report? The rule shows a sequence by which people are responsible. Usually there is a real estate agent or other professional who’s close to the transactional details and meets the parties at both ends of the deal. It could alternatively be a title agent or whoever wrote up the settlement statement. None of those involved? Then the task falls to whoever prepares the deed.

Identify the business organization or the trust receiving the deed. This includes identifying the true owners or beneficiaries. The deed recipient might be an organization such as an LLC or corporation or a partnership. Firms and trustees registered with the Securities and Exchange Commission (SEC) wouldn’t need to file the form.

Include citizenship and any foreign registration details for the deed recipients, and passport numbers or taxpayer ID numbers.

Identify and include a residential address for the party who is transferring the deed.

Identify the property being transferred: its address and the legal description from the deed. If it’s a two-to four-unit condo, the reporting person would state each address that’s involved in the deed transfer.

State the amount paid, and accounts/source of cash.

Within 30 days of the deed transfer, the reporting person would file the form with FinCEN, and keep a copy of the form for five years.

How It Would Work: Q & A

Here are some questions that may jump to mind for readers, and tentative answers. We say tentative because this proposal is still in its public comment stage. Elements of the rule could change. Readers can send feedback to the government through the yellow-highlighted link below.

Would the proposed rule (and new form) change the way people transfer real estate deeds?

The proposed rule and form would change documentation requirements, potentially affecting deed transfers. The proposed rule means to track movements of cash into homes deeded to business organizations and trusts across the United States.

Is this just for transfers of luxury properties?

Money launderers actually invest in properties across the spectrum, from low- to high-value. For this reason, FinCEN didn’t set a minimum price for the proposed reporting requirement. Gift deeds and transfers into trusts count as reportable, too.

What physical types of homes would count as reportable?

The proposed rule applies to freestanding houses, duplexes and townhouses, multi-unit buildings, and even shares of a co-op. It could include plots on which a home is yet to be built.

What about cash buyers’ privacy interests?

The government would not make completed Reports Estate Report forms searchable by the general public, FinCEN says. But yes, this does implicate privacy rights. The government cites the strong public interest in investigating white-collar crime.

Is there any legitimate purpose to require disclosure of citizenship details?

International buyers participate in a much higher percentage of all-cash deals than U.S. home buyers overall. (FinCEN points to issues with this; for one example, Russian oligarchs have moved money into U.S. residential real estate, often using shell companies.)

What about deed transfers to couples or co-owners?

For a deed transfer solely in the name of one or more individuals, there would be no report required.

What about transfers to sole proprietorships?

Yes, there could be some cases in which a registered entity is made up of just one individual. In that case, that person has to complete the form.

What about homes given to charity?

FinCEN calls non-profits “vulnerable to abuse by illicit actors seeking to launder illicit proceeds through residential real estate.” So cash deals involving charities will be reportable.

What about transferring an easement?

No worries. FinCEN views easements as low-risk, so transferring or donating an easement wouldn’t trigger the proposed rule.

What if the deed transfer happens because someone died?

Deaths, bankruptcy, and spouses splitting up all present a low risk of money laundering, so they’d be exempt from the proposed rule. They’re already under the direction of probate and other court systems.

Why is this rule singling out cash buyers?

FinCEN believes cash deals allow a loophole for money laundering that financed purchases don’t. That’s because institutional lenders already have anti-money laundering reporting rules to follow.

Commenting on the Proposal

Who typically comments? Agencies, institutions and associations, law firms, state bar associations, lenders and title insurers, real estate groups, policy makers, and concerned members of the public.

You can SUBMIT YOUR OFFICIAL COMMENT on this proposed rule by April 16, 2024.

Supporting References

National Archives, Federal Register, the Daily Journal of the U.S. Government: Anti-Money Laundering Regulations for Residential Real Estate Transfers, by the Financial Crimes Enforcement Network. Department of the Treasury Proposed Rule 89 FR 12424 (Feb. 2024).

Fatima Hussein for the Associated Press via APNews.com: Treasury Rolls Out Residential Real Estate Transparency Rules to Combat Money Laundering (Feb. 7, 2024).

And as linked.