US real estate agents could be compelled to report all cash purchases by trusts or legal entities

Thursday, 08 February 2024
The US government is proposing new rules requiring real estate professionals to report all legal entities or trusts that buy any residential real estate for cash.
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The reports will go to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), which is the overarching body responsible for enforcement of the US Banking Secrecy Act's anti-money laundering (AML) provisions. FinCEN says the proposal targets only transactions with high AML risk, in order to minimise the potential business burden. It will not apply to purchases made by individuals.

According to FinCEN, 'non-financed' or 'all-cash' sales of residential real estate, which is to say purchases made without the assistance of a loan, avoid scrutiny from financial institutions that have AML and suspicious activity report (SAR) filing requirements under the Bank Secrecy Act. In an effort to obscure their identities, illicit actors often hold residential real estate in the name of a legal entity or trust. These types of transfers have been identified as vulnerable to money laundering, says FinCEN.

The proposal follows on from the real estate geographic targeting order (GTO) programme launched by FinCEN ten years ago. Originally, these were 'temporary' orders aimed specifically at regions of high and increasing property values, such as Miami and Manhattan, and were limited to properties valued above thresholds in the millions of dollars. Gradually, the programme has been extended and expanded and the new rules will cover properties of any value and located anywhere in the country. They apply to any purchase made without the aid of a loan. Transfers of ownership at no value, such as gifts, would also need to be reported. Exempted transfers would be those involving an easement, occurring as a result of divorce or the death of the property’s owner or being made to a bankruptcy estate.

All businesses performing specified closing or settlement functions for the non-financed sale or transfer of residential real property to an entity or trust will have to collect and report information to FinCEN. This includes information about beneficial ownership of the legal entity or trust receiving the property; individuals representing the transferee entity or transferee trust; the business filing the report; the residential real property being sold or transferred; the transferor and any payments made. The obligation to file would generally apply to settlement agents, title insurance agents, escrow agents and attorneys.

However, persons involved in real estate closings and settlements would continue to be exempt from the Bank Secrecy Act's AML regulations. The reporting person would not need to maintain an AML programme and the modified SAR used for reporting purposes would be known as a 'real estate report'. They would need to be filed within 30 days after the date of the property's transfer and the reporting person would be required to keep a copy for five years.

The proposed rule describes the circumstances in which a report would be filed; who would file a report; what information would need to be provided, including information about the beneficial owners of the legal entities and trusts; and when a report about the transaction would be due. Comments on the proposal can be submitted for 60 days.

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