Many Residential Real Estate Purchases Must Be Reported to FinCEN under New Rule
Opera prompters play a vital role in live opera. Yet, even avid opera fans might not know they exist because prompters typically are positioned near the stage but out of sight in a small box, called a “prompter’s box.”
Prompters help singers by providing verbal or visual cues for lyrics, timing, and stage directions. The prompter's subtle guidance ensures that the performance remains seamless, even in the face of unexpected challenges, such as performer memory lapses or technical difficulties.
Prompters must have an in-depth knowledge of the music, lyrics, staging, and choreography, be expert multitaskers, and remain focused through the entire performance so they can deliver cues a split second before the performer needs them. Technology has introduced tools, such as earpieces, that reduce reliance on live prompters. Still, many opera houses continue to use prompters because, unlike technology, they can adapt in real time to respond to live variations in tempo, unexpected delays, or other deviations from the planned performance.
Similar to off-stage prompters, when a limited liability company, corporation, or trust purchases real estate, the individuals who own and control the buyer remain hidden. Most of these people don’t have a nefarious reason for wanting to stay "off stage" when buying real estate. Yet, starting December 1, 2025, under a new Financial Crimes Enforcement Network (FinCEN) rule, those individuals must step out of their off-stage “prompter’s box,” and reveal their identities when buying residential property. For some real estate investors and individuals with trusts, this will mean the loss of privacy that has long been associated with ownership through legal entities.
This article discusses this new rule and why it also will affect many legitimate transactions that aren't all-cash purchases. The mechanics of this reporting requirement, including who is required to make a report and details about the information that must be reported, will be discussed in a separate article.
Why FinCEN Cares About All-Cash Home Purchases
FinCEN’s rule notes that most residential real estate purchases are completed with mortgages and states that all-cash or non-financed residential property transfers are “high risk for illicit financial activity.” The adopting release states that the rule is designed to “combat money laundering, the financing of terrorism, and other illicit financial activity.”
When a bank loan or financing is obtained from a regulated financial institution, existing laws place the burden on the mortgage lender to screen for illicit sources of funds and to file Suspicious Activity Reports (SARs) when transactions look unusual. However, in all-cash or non-financed deals, there is no lender to scrutinize the source of funds, and no obligation to report suspicious payments. As a result, all-cash real estate purchases can become a mechanism for bad actors to launder money or engage in other illegal activities.
FinCEN has concluded that using legal entities to buy real estate further increases the risk of illegal activity, stating that "illicit actors also often hold residential real estate in the name of a legal entity or trust, in an effort to obscure their identities and their ownership interests in the property.” Yet, there are many legitimate reasons someone might buy residential property and want privacy. Older adults who have paid off their mortgage and are downsizing may buy a smaller home and place it into a trust for estate planning purposes. Real estate investors and family offices also frequently use limited liability companies to acquire properties.
Until now, FinCEN has focused its efforts in specific geographic areas, such as Miami-Dade, New York City, and Los Angeles, which FinCEN considers to be high-risk areas for illicit activity. FinCEN has issued Geographic Targeting Orders (GTOs) that require reporting of additional information for transactions in those specific high-risk geographic areas.
In 2020, the Government Accountability Office (GAO) issued its Anti-Money Laundering: FinCEN report, analyzing data from GTOs. The report noted that seven percent of the transactions reported involved individuals who were already under investigation by the FBI. Law enforcement also used GTO data for investigative leads and to identify properties potentially subject to forfeiture due to criminal activity.
The study also found that about 37% of the reported GTO transactions involved a beneficial owner or purchaser representative who had already been the subject of a Suspicious Activity Report (SAR). However, being subject to a SAR doesn’t prove illegal activity -- it only indicates that a bank saw something unusual that it was required to report. And the previous SAR might not have been for the transaction that was subject to GTO reporting.
Regardless, GAO’s report shows that even in high-risk markets, 63% of transactions showed no signs of illegal activity, and 93% of reports didn't involve individuals currently under FBI investigation. The new rule expands reporting, which was previously limited to high-risk areas, to all transactions, regardless of the location of the real estate. Therefore, many innocent investors and property owners will lose the privacy they expected when setting up a trust or LLC, so that FinCEN can identify a relatively small number of bad actors. Further, on their face, the policy reasons for the rule seem inconsistent with FinCEN’s decision earlier this year to exempt all domestic entities from Corporate Transparency Act reporting.
When Does the Rule Apply?
The rule applies when the following three elements are present:
Residential real property is being transferred. “Residential real property” is defined to include single-family homes, condominiums, cooperatives, duplexes, triplexes, and fourplexes, as well as unimproved land intended for construction of 1–4 family dwellings. Therefore, real estate investors who invest in duplexes, triplexes, or quadplexes, or a portfolio of single-family homes, are considered to be purchasing "residential real property." Likewise, a real estate developer planning to build condominiums or single-family homes on raw land would fall under the rule.
The transfer is “non-financed,” meaning it’s not financed by a credit source like a bank or other financial institution that is already subject to US anti-money laundering (AML) or SAR requirements. So many real estate purchases that aren't all-cash deals will be subject to the rule. For example, the rule will apply to transactions financed by private lenders, hard money lenders, or seller mortgages, as well as other financing structures that don’t involve financial institutions.
The transferee is an entity or trust, rather than an individual. So, purchases by limited liability companies (LLCs), corporations, partnerships, and trusts all fall under the rule.
The Rule Covers Seller Financing and Transactions That Aren’t “All-Cash” Purchases
A seller who provides financing via a promissory note and mortgage is not a regulated financial institution. Therefore, seller-financed acquisitions into LLCs or trusts are considered non-financed and must be reported.
Therefore, legitimate transactions designed to facilitate deals, particularly those involving smaller or distressed properties or situations where the seller desires installment sale tax treatment for their gains, are treated as if they were cash purchases. Real estate investors and syndicators often use seller financing to close deals on duplexes or fourplexes. And sellers who desire to spread out their capital gains from a sale may find it more challenging to find purchasers willing to agree to an installment sale, because seller financing will result in a FinCEN filing and loss of the privacy the purchaser sought by placing their investments into a limited liability company or trust.
The rule’s wide net also will capture other ordinary, legitimate purchases. For example, investors in distressed properties often rely on hard money lenders that aren’t subject to AML or SAR reporting requirements. Financing through private lenders, including family members or investment funds, also will fall under the rule.
Exceptions to the Rule
There are exceptions to the rule that help protect privacy in non-suspicious situations. For instance, the following transfers don’t require reporting even if they are considered “all-cash” transactions:
Transfers as a result of death (e.g., via a will, trust, or operation of law).
Transfers as a result of divorce or dissolution of a marriage or civil union.
Transfers to a bankruptcy estate and other transfers supervised by a court.
Transfers for no consideration by an individual (alone or with spouse) to a trust of which the individual or their spouse is the settlor.
Transfers to qualified intermediaries in connection with Section 1031 exchanges.
Certain transfers that don’t involve transfer of fee ownership, such as easements or licenses.
The Rule Covers Many Legitimate Legal Entities
Despite these exceptions, the rule will capture transactions that are neither all-cash deals nor suspicious in nature. For example, suppose a retiree places their home in a trust to avoid probate and then sells the house, using the sale proceeds to buy a smaller home without a mortgage. That innocent transaction will fall under the rule. Additionally, individuals who share ownership in a vacation home through an LLC or partnership may fall under the rule if the owners decide to sell the building and use the proceeds to purchase a different property.
Many people utilize trusts, family limited partnerships, or family offices for estate planning purposes. Purchases by those entities will fall under the rule if they purchase residential real estate without using conventional mortgage lenders or banks to finance the purchase. It’s important to note that although the rule excepts transfers by an owner to a trust without consideration, FinCEN expressly declined to make a similar exception for transfers to an LLC or partnership.
Takeaways for Real Estate Sponsors and Trustees Acquiring Residential Real Estate
Privacy is No Longer Assured
The rule will require that beneficial ownership information be reported all the way back to the warm bodies who own at least 25% of the equity or beneficial interest in an entity. So, passive real estate investors in syndicated deals or trust beneficiaries may find their names in FinCEN’s database even though they have no control over the investment.
Many Financed Transactions Fall Under the Rule
Any financed transaction that doesn’t involve a lender already subject to AML or SAR requirements is likely to fall under the rule, even though it isn’t an “all-cash” deal in the traditional sense. Therefore, investors or homeowners who utilize seller financing, hard money loans, family member loans, or other similar non-suspicious financing sources will be subject to the rule if they use a legal entity to purchase residential real estate.
Obtain and Maintain Beneficial Ownership Information
Sponsors and trustees will need to collect beneficial ownership information from any entities that invest. Therefore, sponsors involved in residential real estate syndications should incorporate ownership disclosure requirements into their subscription process and establish a procedure for maintaining this information over an extended period.
Conclusion
An opera prompter is unseen – and that is how it should be. Revealing the prompter to the audience would have no possible benefit to the performance. If prompters were required to step out of the shadows, opera companies or singers might choose to forego the use of prompters and risk flawed performances, rather than revealing what might be perceived negatively by the audience.
Likewise, the new FinCEN rule will compromise the privacy of individuals in legitimate transactions and may disincentivize ordinary investment and development activities that benefit the community.
Statistics on the use of GTOs show that the vast majority of transactions, even in geographic areas identified as "high-risk," aren't suspicious. Expanding disclosure to cover lower-risk geographic areas will also expose even more legitimate buyers to the loss of privacy they expected when forming a trust, partnership, or LLC.
The rule could deter legitimate buyers from agreeing to seller-financing, which could benefit retirees who desire a steady cash flow from the sale of their home or investments in duplexes, triplexes, or fourplexes. And the rule could also deter legitimate buyers from purchasing and restoring distressed properties that aren’t eligible for conventional mortgages. Alternatively, a real estate developer planning to rely on a development fund to acquire raw land to build much-needed affordable fourplex housing might be forced to abandon the project if fund investors are unwilling to invest due to privacy concerns.
© 2025 by Elizabeth A. Whitman
Any references to clients and their legal situations have been modified to protect client confidentiality.
DISCLAIMER: The content of this blog is for informational purposes only and does not provide legal advice to any person. No one should take any action regarding the information in this blog without first seeking the advice of an attorney. Neither reading this blog nor communication with Whitman Legal Solutions, LLC or Elizabeth A. Whitman creates an attorney-client relationship. No attorney-client relationship will exist with Whitman Legal Solutions, LLC or any attorney affiliated with it unless a written contract is signed by all parties.