FinCEN has always been intended to quash potential money laundering in real estate transactions. It is meant to deter those who would funnel potentially illegally obtained funds by buying and selling real estate using an entity (such as a corporation or limited liability company) without identifying the individual parties behind the entity. All cash transactions involving entities or trusts have been identified as “high risk” for money laundering due to the potential for anonymity of the parties. All real estate transactions as of this month are subject to evaluation as to whether reporting is required. Further, an updated New York State transfer tax return is to be used. The new FinCEN regulations are to be applied to residential real estate transactions with an entity buyer that is purchasing without an institutional lender. Private lending and hard money transactions are subject to reporting because such lenders typically do not evaluate the individuals behind a purchasing entity as carefully as would an institutional lender.
Exemptions include transfers to trusts where the transferor and transferee are essentially one and the same party. For instance, a person wishes to transfer his house to a trust in which he is the trustee. In addition, transfers pursuant to administering an estate or life events such as divorce are also exempt from reporting.
There is a “reporting cascade” of those who are required to report as follows: the party who is listed as the settlement agent on the settlement statement (usually the private or hard money lender) or the party who files the deed (usually the title company). These parties in order of reporting priority are followed by others who may be likely to be interpreted as the title company, which is followed by the party who prepares the deed (usually the seller’s attorney). The parties to the transaction can designate another party, such as the title company, to be the reporting person. Parties should expect additional fees to be assessed for the extra reporting burden.
Should reporting be required, personal details on the individuals to the transaction, such as their date of birth, residence address, citizenship and social security number must be collected. Reporting is completed through an online portal.
Our attorneys will continue to update our readers as to any other substantial changes to regulations.