In our previous blog entry, Jennifer Stone did a great job of summarizing FinCEN’s new Anti-Money Laundering Rule that is scheduled to go into effect as of December 1, 2025. In short, the Rule will generally require South Carolina real estate attorneys to make reports to FinCEN concerning every residential (1-4 Family property) transaction where 1) the grantee is an entity or trust and 2) there is no financing provided by a lender that is subject to federal anti-money laundering reporting obligations.
The closing attorney will be on the hook (under threat of civil and criminal liability) to collect extensive information from the parties to the transaction, including the names and addresses of every person or entity who has a beneficial interest in or control over the grantee entity. Generally speaking, the collection of information is well outside the scope of the usual real estate closing and places the burden on attorneys and title companies to collect information from third parties who may not be willing to share that information.
However, there is still the possibility that the Rule will not go into effect as scheduled in December. This past May, Fidelity National Financial, Inc. (“FNF”), the parent corporation of Chicago Title, filed suit in federal court challenging the Rule and thereby taking the lead role in speaking up on behalf of attorneys and title agents in advocating for more measured, less burdensome requirements and reporting.
In the lawsuit, FNF has requested an injunction suspending FinCEN’s enforcement of the Rule. A hearing is currently scheduled to be heard on September 30, 2025.
FNF also filed a Motion for Summary Judgment to which the American Land Title Association (ALTA) recently expressed its support by filing an amicus brief. ALTA, of course, is the most prominent trade association of title insurance companies and title agents in the United States.
While FinCEN asserts that the cost to the title industry (including closing attorneys) of meeting the reporting requirements could reach as high as $600 million annually, ALTA’s brief argues that FinCEN has significantly underestimated the training and collection time necessary to comply and that the true cost to the industry will be significantly higher. ALTA argues that the this significant burden cannot possibly be outweighed by the corresponding benefit to law enforcement. ALTA points out that FinCEN drastically reduced the scope of the reporting of Beneficial Ownership Information (BOI) under the Corporate Transparency Act (which we wrote about here) in part because the new administration believed that reporting on American formed entities was of limited value to law enforcement.
ALTA further argues that the reporting burden under the Rule will disproportionately fall on small businesses that are “ill equipped” to absorb the additional costs and regulatory burden of reporting in an industry with already thin margins. I think many South Carolina residential real attorneys with already thinly stretched teams would agree wholeheartedly with ALTA in that statement.
Certainly, there are quite a few miles to go with this lawsuit before a final verdict is rendered concerning the new Rule. We will continue to keep an eye on the progress of this case, but for now South Carolina attorneys must continue to develop procedures for complying with this Rule when it goes lives on December 1.
At this point we should have all heard about FinCEN’s Anti-Money Laundering rule, but details may still be fuzzy. Let’s break down the information available to prepare for what appears to be a new reporting requirement intended to go into effect December 1st, 2025! That’s right! As of this article, reporting obligations begin THIS YEAR!
FinCEN’s Anti-Money Laundering Rule applies to any non-financed transfer of any residential real estate to a legal entity or trust. This includes transfers that occur anywhere in the U.S., including Puerto Rico and overseas territories. Keep in mind that this rule covers “transfers” – not just sales. There is no minimum purchase price to trigger this reporting requirement.
There are several key words in this first sentence.
“Non-Financed” – Specifically, FinCEN is targeting transactions where there is no loan secured by transferred real estate, AND the loan is not made by a financial institution with an anti-money laundering program and an obligation to report suspicious transactions.
So, in the inverse, if you have a transfer that is a cash purchase or involves private equity lending or even hard money lenders, this will trigger the reporting obligation.
“Residential Real Estate” – What is residential real estate? This seems like it should be a pretty straightforward question with an expected response. Here are certain types of residential real estate that FinCEN includes within these regulations:
A residential property with a 1-4 family structure
Vacant land on which buyer intends to build 1-4 family structure
Condo or co-op
Apartment buildings or mixed use with a 1-4 family structure (existing or to be built)
However, how do you determine buyer’s intended use of the property? Will the inclusion of commercial aspects of use affect reporting requirements? We may not see many properties that combine residential and commercial use, but, especially in more rural areas, there are sites on which a business owner both lives and maintains a commercial structure such as a workshop or garage.
“Legal Entity or Trust” – This is pretty broad language. We can probably all agree on the most common types of entities that hold property, including corporations, limited liability companies, general partnerships and limited partnerships. These are easy to recognize in connection with a non-financed transfer or residential real property. The second part, or the “Trust” component of this term, is generally understood, as well, and is intended to include the basic understanding in South Carolina that, although a trust is a legal fiction, a trustee of a trust can hold title to real property in South Carolina apart from the individual rights of that trustee, the grantor/settlor or the beneficiary(ies) of the trust. For purposes of FinCEN’s rule, a transferee trustee does not include (i) a statutory trust); (ii) a trust that is a securities reporting issuer; or (iii) a trust in which the trustee is a securities reporting issuer. Other exclusions from FinCEN’s definition of trust transferee include a governmental authority, a bank or credit union and a public utility.
Exemptions!!!
There are certain exemptions to FinCEN’s reporting requirements under these regulations, including the grant, transfer or revocation of an easement or property subject to a reverse 1031 exchange1. Other exemptions may include:
A transfer pursuant to the terms of Last Will, testamentary trust, by operation of law or contractual obligation following the death of an individual;
A transfer incident to divorce order;
A transfer to a bankruptcy estate; and
A transfer supervised by a court in the United States (possible a forfeiture).
Who is the Reporting Person?
There is a list of priorities for who is to be the reporting person for purposes of these regulations. First is the settlement agent named on the settlement statement. FinCEN does not note a difference between an attorney settlement agent and a non-attorney settlement agent. The second choice for a reporting person is the person that prepares the settlement statement. The third choice is the person that records the deed in the public records. The fourth option is the person that issues the owner’s title insurance policy. Fifth is the person that dispenses the greatest amount of funds. Sixth choice is the person who examined title and the final and seventh option is the person that prepared the deed.
I can imagine so many unforeseen and unexpected problems arising from placing reporting obligations upon the individuals that might find themselves on the foregoing list. Other than a settlement agent, or perhaps the person preparing the settlement statement if that person has been specifically allocated the duty to report under these regulations, these individuals could be people that have never heard of these regulations or the type of reporting requirements that have now been legally assigned to them. A prime example could be a deed from a parent as grantor to a family estate planning entity or other estate planning transfer where a real estate attorney might not be involved. If there is no settlement agent and no settlement statement prepared, as between the parties (grantor/grantee/trustee?), whoever records the deed now has the obligation to report this transfer to FinCEN.
What must be reported?
There has been a lot of discussion of what type of beneficial ownership information must be reported and disclosed, so I won’t go into that in this article, but what other information must be reported? Certain payment information must be reported to FinCEN under these regulations including (i) the amount of any payment made, (ii) the form of payment, (iii) the name of the payor if the payor is not the transferee entity or trust and, (iv) if the payment comes from a financial institution, the name of that institution and the account number.
When must the report be submitted? The report is due to FinCEN by the last day of the month after the date of closing. For example, if the transfer occurs on February 28th, reporting is due by the last day of March that same year. However, it is particularly important to gather all information needed for a full and complete report prior to closing. We know once the transfer is complete, it is difficult to get additional items from the parties to the transaction. However, when pressed by ALTA for a “good faith” basis of approval for a partial or incomplete report, FinCEN did not bite. FinCEN maintains that their “Reasonable Reliance Rule” addresses concerns over difficulty to obtain all information necessary to fully report the transfer.
What is the Reasonable Reliance Standard/Rule? FinCEN says that absent knowledge of facts that reasonably call into question the reliability of the information provided, a reporting person may rely on information provided, including buyer’s intended use of the property (for residential purposes?) and for lenders’ qualifications (do they hold themselves out to have an AML program and be subject to obligatory reporting?). However, BOI must be certified to the reporting person!
What if you do not report under these regulations? Violations of these regulations include both civil and criminal liabilities and penalties. These are the normal violations and penalties under general FinCEN regulations and not special to the AML Regulations but can be severe. Criminal penalties can result in financial obligations and prison time and civil penalties, which accrue for each separate willful violation range from $25k to$100K and violations for negligence are not to exceed $500 or $50k if a pattern of negligence is found. This is not all-inclusive of the repercussions for violations of these reporting regulations, but definitely something to get your attention!
How can we prepare?
Although we do not have FinCEN’s final real estate report that real estate professionals can use to report information for each covered transfer, as I stated at the beginning of this article, the reporting period begins December1, 2025. This means that people involved in residential real estate transfers to legal entities or trusts that may not involve financial institutions subject to federal anti-money laundering programs and reporting duties need to begin studying these regulations and to afford time and resources for training to know what information to collect, how and from whom to collect it, and how and when to report it.
While there may be an exemption in a standard 1031 exchange depending on the deal specific facts, this potential exemption is intended for reverse 1031 transactions where the replacement property is transferred to an entity accommodation titleholder during the course of the overall 1031 exchange transaction. ↩︎
I have written many words about the Beneficial Ownership Information (BOI) reporting requirement of the Corporate Transparency Act (CTA) over the last couple of years and much of my writing has been rendered obsolete by events. So, it came as no surprise on March 21, 2025, when the world changed again, but even I wouldn’t have thought they’d have done the CTA like they done.
If you want to get to the meat of the latest development, you can skip ahead to the end of this lengthy entry, but for those of you that need a refresher or those that just want to watch me work through my feelings a bit, the next few paragraphs are for you.
Readers of this blog probably know by now that Congress passed the CTA some years ago for the stated purpose of assisting law enforcement agencies in preventing bad guys (foreign and domestic) from laundering money and hiding assets in the United States using shell companies. In its wisdom, Congress decreed that almost any entity registered with a Secretary of State’s office must file a report detailing the significant stakeholders in the entity and where they might be found.
Under the Biden Administration, the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, came up with a framework of rules, processes, and penalties covering the duty of entities to report BOI. New companies would have 30 days to report the required BOI information to FinCEN; all existing entities would have to make their report by January 1, 2025.
However, the whole thing did not go off as smoothly as planned for FinCEN. Across the country (but most especially in Texas) plaintiffs filed lawsuits challenging the reporting requirement as unconstitutional or at least very inconvenient and burdensome. Before FinCEN could even think about imposing its first fine, a Texas federal court entered an injunction enjoining FinCEN from enforcing the BOI reporting requirement while the parties litigated the constitutionality of the Rule. Game Off!
The Government appealed this ruling to the Federal Court of Appeals for the Fifth Circuit, which initially removed the injunction. Game On!
But, just a few days later, the same Court of Appeals, reinstated the injunction. Game Off!
The Government (by this time the Trump Administration) remained dogged in its defense of the reporting requirements and appealed the matter to our highest court. There, the United States Supreme Court ultimately sided with the Government and rescinded the injunction in the first Texas case. Game On! However, by this time a second Texas federal district court had entered its own nationwide injunction against enforcement of the Act. Game Off!
More time passed, additional words were written, and additional hearings were held, but eventually this other Texas federal district court decided that despite the impassioned argument of the Plaintiffs it did not have authority to ignore the persuasive authority of the Supreme Court’s previous ruling in a nearly identical case. Subsequently, the Texas court (I would like to imagine) somewhat sulkily rescinded its injunction. Game On! Likely a joyous party continued into the wee hours in the FinCEN offices the day it announced that BOI reporting was back, and that the deadline for reporting would for certain be March 21, 2025.
However, this is the year 2025, and this the Corporate Transparency Act we are talking about, so it was not so simple for the good folks at FinCEN. On February 21, 2025, FinCEN issued a press release indicating that despite the Government’s vigorous effort to defend the Rule all the way the Supreme Court, that it did not plan to enforce the Rule. The press release indicated that FinCEN planned to issue an Interim Rule before the March deadline, but the FinCEN website still promised fines and penalties for anyone failing to comply. Game Off?
On March 21st, FinCEN issued an Interim Rule that dramatically changed the scope and application of the Rule. First, the Interim Rule specifically exempts United States entities from BOI reporting requirements. Second, the Interim Rule provides that foreign entities registered to do business in the United States need not report any information about its beneficial owners that are United States individuals. Third, the reporting deadline for foreign entities to file BOI reports was extended to 30 days from the effective date of the Interim Rule.
The Interim Rule certainly reduces the theoretical usefulness of BOI reporting to law enforcement as FinCEN’s database will now only contain information about foreign entities that register in the United States and their foreign beneficial owners. Criminals inclined to set up shell companies to hide their illicit assets probably would be well advised to use entities formed in the United States if that isn’t what they were doing before. Perhaps, the Interim Rule is arguably not what Congress intended, but there is a lot of that going around.
Practically, the reduction in the scope of the Rule will diminish the relevance of the CTA to real estate lawyers. Those attorneys that represent foreign entities doing business in the United States will need to be prepared to advise clients of the reporting requirements that go along with registering their foreign entity in the U.S., but those attorneys representing entities formed in the United States can likely breathe a long sigh of relief. At least for the moment.
On December 3, the United District Court for the Eastern Division of Texas granted a nationwide preliminary injunction that prohibits the federal government from enforcing The Corporate Transparency Act.
In response, the United States Treasury Financial Crimes Enforcement Network (FinCEN) announced on December 9 that while the injunction is in place, compliance with the CTA is only voluntary.
The Corporate Transparency Act, which went into effect January 1, 2024, requires many companies to report beneficial ownership information to FinCEN. Beneficial ownership information is defined as identifying information about the individuals who directly or indirectly own or control a company. The deadline for entities created before January 1, 2024 was January 1, 2025
Lawyers have been scrambling to grasp the intricacies of the new law and to assist their corporate clients, including homeowners’ associations, in compliance.
Six plaintiffs filed the lawsuit in May challenging the constitutionality of the law. The decision is based on the Commerce Clause, and the statute is based on national security and aimed at enforcing laws against money laundering.
This case will surely go to the Supreme Court, and we will have to wait to see how that Court reacts. It is possible that the rationale for the legislation holds for some but not all entities. Homeowners’ associations seem to be likely candidates to dodge this particular bullet.
In the meantime, your clients are not required to comply with the new law.
The Corporate Transparency Act, which went into effect January 1, 2024, requires many companies to report beneficial ownership information to the United States Treasury Financial Crimes Enforcement Network (FinCEN). Beneficial ownership information is defined as identifying information about the individuals who directly or indirectly own or control a company. The deadline for entities created before January 1, 2024 is January 1, 2025.
Lawyers have been scrambling to grasp the intricacies of the new law and to assist their corporate clients, including homeowners’ associations, in compliance.
But we have a huge development.
On December 3, the United District Court for the Eastern District of Texas granted a nationwide preliminary injunction that prohibits the federal government from enforcing the new law.
Six plaintiffs filed the lawsuit in May challenging the constitutionality of the law. The decision is based on the Commerce Clause, and the statute is based on national security and aimed at enforcing laws against money laundering. This case will surely go to the Supreme Court, and we will have to wait to see how that Court reacts. It is possible that the rationale for the legislation holds for some but not all entities. Homeowners’ associations seem to be likely candidates to dodge this particular bullet.
On November 24, just 48 hours before the National Association of Realtors’ settlement agreement headed to final approval, the Department of Justice filed a statement of interest in the lawsuit.
The filing indicated that the DOJ did not participate in the underlying litigation, but it challenged the settlement’s provision that requires buyers and buyers’ agents to enter into a written agreement before touring a home. This provision raises concerns under antitrust laws that could be addressed in multiple ways, according to the DOJ’s statement.
The DOJ suggested rectifying the issue by eliminating the buyer broker agreement requirement or to disclaim that the settlement creates any immunity or defense under the antitrust laws. Otherwise, the court could clarify that the settlement approval affords no immunity or defense for the buyer-agreement provision. The DOJ believes the settlement could limit the ways buyer brokers compete for clients.
The final hearing is scheduled for November 26 in Missouri. The NAR said in a statement that it will advocate for a final settlement that day. The statement suggested that the settlement is not what the NAR wants, but that it is preferable to continued litigation and the uncertainty of a jury verdict.
We’ll see lots of news on this topic this week and next week!
In the meantime, Happy Thanksgiving wishes for you and your family!
Real estate impersonation scams have “evolved”, it says
In September, the United States Secret Service issued an update to its “Real Estate Scam – Vacant Properties” Advisory (v. 1.1) The original Advisory was issued in Spring of 2022.
The current Advisory warns that the Secret Service has become aware of an increase of instances where criminals are impersonating title companies to steal real estate funds. Remember that “title companies” actually close transactions in many states. In South Carolina, the bad actors would impersonate law firms and banks.
Now more than ever, it is important for everyone involved in a real estate transaction to validate wires before they are sent. The last thing you need is for your law firm to have to provide funds to replace lost closing proceeds!
Often, the perpetrator impersonates the title holder and negotiates to sell unoccupied property to an unsuspecting buyer. Once the contract is signed, the criminal directs the buyer or realtor to the criminal’s account, impersonating a title company or law firm. The perpetrator impersonates the closing office by purchasing fake domains, similar to the closing office’s domain. (Such as me@lawfiirm.com vs. me@lawfirm.com.)
Red flags are identified by the Advisory:
Communications are primarily by email and communications contain poor grammar. (This is from me, not the advisory. If you ever seen the word “kindly”, such as “kindly wire the funds to….” Remember we don’t typically talk that way! Any twisted language or bad grammar may indicate the communication is coming from someone and some place with a first language other than English. Always use common sense!)
Wiring instructions are sent over standard email instead of a secure email platform.
The listing is below market value and the “seller” is looking for a cash buyer or quick closing.
The “seller” wants to use its preferred closing office.
The closing office is outside of the area where the real estate is located.
The Advisory suggests the following avenues of prevention:
Conduct an online independent search of the entity to which the funds are to be wires.
With a known phone number (from a trusted website or previous contact) CALL and verify the wiring instructions and names on accounts.
If possible, visit a local branch of the entity to which the funds are to be wired.
Obtain a government issued ID from each party, and evaluate IDs for abnormalities.
Consider a form of multi-factor authentication with your clients. For example, send an overnight letter to the mailing address on the tax bill asking the property owner to call you with a one-time code embedded within the letter.
I was in Washington D.C. last week with one husband and four grandchildren under 12. To see as much as we could, we walked about ten miles per day. One day, we passed the Department of Justice and the National Association of Realtors. Coincidentally, on that same day, I received word from the Chicago Title office in Columbia that the D.C. Circuit Court had ruled that the DOJ’s Antitrust Division can reopen its investigation against the NAR.
This investigation dates back to a 2005 lawsuit challenging the NAR’s operation of its multiple-listing services (MLS). The suit claimed that internet competitors and their clients were blocked from having full access to listings. This practice, the lawsuit claimed, reduced competition and kept real estate agents’ commissions high.
The parties entered into a settlement in 2008, which expired in 2018. The DOJ began its investigation again and issued two subpoenas to the NAR. One subpoena sought information about the NAR’s “participation rule” which requires listing brokers to offer the same commission to all buyer brokers using the MLS. The other subpoena sought information about the NAR’s “clear cooperation policy”, which requires listing brokers to post properties on the MLS within one day of the beginning of marketing. The DOJ claimed both policies limited competition.
In 2020, the parties agreed to a Consent Judgment. This document contained a reservation-of-rights provision that allowed the DOJ to continue to investigate and bring additional litigation. The settlement documents did not mention the participation rule or the clear cooperation policy. But the DOJ sent a letter to the NAR stating it had closed its investigation into those two rules and that the NAR was not obligated to respond to the subpoenas. The letter contained a no-inference clause providing that no inference could be drawn from the closing of the investigation.
In 2021, after unsuccessfully attempting to renegotiate the reservation-of-rights clause, the DOJ withdrew the Consent Judgment. The DOJ also dismissed the complaint and issued new subpoenas. The NAR petitioned the Circuit Court to set aside one of the subpoenas on the grounds that it breached the settlement agreement. The Court agreed. A two-judge panel of the Court reversed, relying on the “unmistakability” principle, which requires courts to refrain from interpreting a contract to cede a sovereign right of the United States unless the government waives that right unmistakably. The no-inference clause, according to the court, explicitly disclaims that intent.
The Court allowed the investigation to continue but expressed no opinion about whether any laws have been violated by the NAR. This case is different from recent actions claiming the NAR’s policies on commissions are anti-competitive. We can expect much more litigation involving the NAR.
This blog has previously discussed the March 15 proposed settlement by The National Association of Realtors (NAR) of four large antitrust suits involving buyers’ broker commissions. The monetary settlement was set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.
There is movement in a related matter between the NAR and the U.S. Department of Justice (DOJ). Last month, a District of Columbia Circuit Court of Appeals panel of judges reversed a lower court decision to set aside a 2021 investigative subpoena from the Antitrust Division of DOJ. That subpoena had been issued in a previously closed investigation into NAR commission policies.
This ruling effectively held that a case being previously closed does not prevent its being reopened, allowing the DOJ to continue its antitrust investigation.
Several news sources are reporting that in a status hearing in a Massachusetts case, the DOJ made its first public comment since the NAR settlement this week. An attorney for the DOJ apparently stated that the DOJ believes offers of compensation to buyers’ agents should not be made anywhere, and certainly not on the MLS.
This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in this litigation. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.
The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.
Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers suggest that home prices will increase as a result of these machinations. I’ve even heard that only wealthy buyers will have broker representation.
I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.
Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.
One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.
The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles. Any activity from the DOJ will be particularly noteworthy.
The National Association of Realtors (NAR) announced a proposed settlement on March 15 of four large antitrust suits involving buyers’ brokers commissions. The monetary settlement is set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.
This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in these lawsuits. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.
The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.
Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers even suggest that home prices will increase as a result of these machinations.
I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.
Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.
One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.
This blog earlier discussed the $1.8 billion verdict in federal court in Missouri against the NAR and two brokerage firms. Other lawsuits followed this verdict, and this settlement intends to bring all the suits to a conclusion.
The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles.
Let's Talk Dirt 