Court Vacates FinCEN’s Residential Real Estate Reporting Rule
When I saw Merrily We Roll Along on Broadway, it was interesting to see the orchestra placed above and behind the stage so it became part of the audience’s visual experience. In most musicals, the orchestra is in an orchestra pit, a recessed area below the stage between the audience and the performers. Typically, although the audience can hear the orchestra performing in the pit, the musicians are mostly hidden from view.
As a musician, I found Merrily We Go Along’s approach not only unique but also refreshing. In addition to placing the orchestra above the stage, the lighting plan appeared to include times when the orchestra would be more visible during the production. The strategy was a move toward recognizing the orchestra’s musicians as critical parts of the production, rather than hiding them from view.
Similarly, real estate transactions often treat beneficial owners like most musicals treat the orchestra: hidden. Beneficial ownership is obscured behind entities such as LLCs or trusts formed to own real estate. This concealment, intentional or not, can influence how ownership roles are perceived and regulated.
These strategies usually aren’t driven by a desire to hide who really owns the real estate. Rather, mortgage lenders typically require that an SPE own the real estate they are financing to contain risk to the specific real estate asset. Lenders don’t want a problem with other investments to place the viability of their collateral at risk – hence the requirement that an SPE own the real estate. And trusts a common estate planning mechanism that can prevent the cost and hassle of the real estate being part of a probate estate.
However, the Financial Crimes Enforcement Network (FinCEN) has long been concerned that, rather than being routine structures driven by a desire for risk containment or estate planning, SPEs or trusts will be used to conceal illegal activity. Most recently, FinCEN started requiring that certain residential real estate transactions involving SPEs or trusts disclose their ownership. This article discusses a recent decision in which a court vacated FinCEN’s Real Estate Reporting Rule (Rule).
History of FinCEN Regulation of Real Estate Transactions
For some time, FinCEN has required financial institutions, such as banks, to file suspicious activity reports (SARs). In 2003, FinCEN issued a previous Advanced Notice of Proposed Rulemaking (2003 ANOPR) requesting comments on money laundering risks in real estate closings and settlements. Although many commentators believed the settlement process should be regulated, there was no consensus on what businesses should be covered by the regulations.
In 2012, FinCEN started requiring non-bank residential mortgage lenders and originators to file SARs. In 2014, that requirement was expanded to include Fannie Mae, Freddie Mac, and Federal Home Loan Banks due to their involvement in the residential mortgage market.
FinCEN also has attempted to regulate all-cash residential real estate transactions, which account for about 19% of existing home sales and 4.4% of new home sales. In 2016, FinCEN issued Geographic Targeting Orders (GTO) requiring title insurance companies to report all-cash home purchases in target metropolitan areas, including Manhattan and Miami, with a reporting threshold of $3 Million. FinCEN also sought to identify the beneficial owners making those purchases.
Over time, FinCEN issued additional GTOs covering areas in Florida and New York, as well as parts of California, Hawaii, Illinois, Massachusetts, Nevada, and Washington, and lowered the reporting threshold to $300,000. While FinCEN reports these GTOs have been helpful to law enforcement in identifying money laundering and pursuing criminal complaints, indictments, and asset forfeitures.
Beginning March 1, 2026, FinCEN’s Real Estate Reporting Rule (Rule) required that certain SPEs disclose their beneficial ownership 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. The Rule has been criticized because, rather than focusing on GTOs where there is at least some evidence of an elevated risk of fraudulent transactions, the Rule applies to all residential real estate transactions.
Background: What the Real Estate Reporting Rule Requires
The Rule applies any time the following three elements are present, regardless of whether there is data that the transaction occurs in an area or transaction where there is an elevated risk of fraud:
· 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 the construction of 1–4 family dwellings. Therefore, real estate investors who invest in those assets 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-financed 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.
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 Captures Many Innocent, Legitimate Transactions
The Rule’s wide net captures many legitimate transactions designed to facilitate deals. For instance, transactions involving smaller or distressed properties, or situations where the seller desires installment sale tax treatment for their gains, are treated as cash purchases.
Real estate investors and syndicators often use seller financing to close deals on duplexes or fourplexes. And sellers who wish 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 trigger a FinCEN filing and result in the loss of the privacy the purchaser sought by placing their investments into a limited liability company or trust.
The Rule also captures 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.
Flowers Title Companies, LLC v. Bessent
Given the breadth of the Rule and the burden on title companies, attorneys, and others involved in real estate transactions, it’s no surprise that the rule has been met with opposition. In Flowers Title Companies, LLC v. Bessent, filed in the United States District Court for the Eastern District of Texas, the Plaintiff alleged that the Rule violated the Administrative Procedure Act (APA), exceeded FinCEN’s statutory authority under the Bank Secrecy Act, violates the nondelegation doctrine, and violates the Fourth Amendment.
On March 19, 2026, the Court granted the Plaintiff summary judgment and held that the Rule “conflicts with the unambiguous terms of the Bank Secrecy Act,” vacated the Rule (ordered that it be of no further force and effect). In doing so, the Court noted, among other things, that the Bank Secrecy Act only authorizes the agency to “require any financial institution, and any director, officer, employee, or agent of any financial institution, to report any suspicious transaction relevant to a possible violation of law or regulation.” However, the Rule applied to all non-financed residential real estate transfers to entities or trusts, whether or not they were shown to be “suspicious.”
Not every Court has agreed that the Rule exceeds FinCEN’s authority. The U.S. District Court for the Middle District of Florida ruled in Fidelity National Financial, Inc. v. Bessent that the Rule was lawful, and there is at least one other pending case challenging the Rule. These conflicting decisions make an appeal likely. So, while the Rule won’t be enforced for now, that could change.
Conclusion
In Merrily We Roll Along, placing the orchestra above the stage brings the source of the music into full view. On its face, FinCEN’s Rule appears to attempt something similar—moving certain hidden participants into view when property is acquired through an entity or trust in a non-financed transfer.
However, the orchestra in Merrily voluntarily placed itself in full view, and the effect was to recognize its contribution to the performance. FinCEN didn’t make reporting optional – it forced parties with legitimate reasons for establishing limited liability companies and trusts to report their ownership. And the Rule’s purpose wasn’t to positively impact parties.
It likely will be several years before this issue fully works its way through the courts. And there remains the possibility that Congress could expand FinCEN’s authority, similar to how it did in the Corporate Transparency Act. So even though parties may have a legitimate reason for their ownership structures and wanting privacy, they should be aware that privacy is not guaranteed in the future.
© 2026 by Elizabeth A. Whitman
Any references to clients and their legal situations have been modified to protect client confidentiality.
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