There is a new federal reporting rule taking effect December 1, 2025, that will indirectly, and possible directly, affect REO sellers. The U.S Treasury Department’s Financial Crimes Enforcement Network (FinCEN) Real Estate Reporting rule (“Rule”) will require closing attorneys and title companies to report to the federal government details from non-financed, residential real estate transfers to legal entities and trusts.
Impacted transactions will include all-cash sales, seller-financed purchases, and transactions with private or hard-money lenders not subject to the Bank Secrecy Act, a federal law aimed at money laundering and other financial crimes.
In almost all cases, the settlement agent will be responsible for collecting required data – at this time there are 111 required data points – from the purchaser and seller, and then submitting the data to the federal government. The Rule can be found here: https://public-inspection.federalregister.gov/2024-19198.pdf.
The type of information that will need to be collected and reported includes information about the: 1) reporting person (settlement agent); 2) transferee (REO purchaser); 3) transferee’s beneficial owners and signing individuals; 4) transferor (REO seller); 5) subject property; 6) funds used by transferee for the purchase; and 7) hard-money, private or other similar loan subject to the new Rule.
Some details are not yet known, for example the government has not yet released the type or format of the report. And the collection process will vary among settlement agents, but with the potential of civil and criminal penalties there’s no doubt settlement agents will strictly comply with the new Rule.
While the burden of complying with the new Rule will be placed on closing attorneys and settlement agents, and the bulk of the required reporting data will come from purchasers, REO sellers still will be affected in the following ways:
- Transferor-required information: the amount and type of information required from transferors pales in comparison to the same required from transferees, and honestly, may not be all that much different than what currently is in practice. REO sellers will be required to provide the full legal name of their entity, their trade name, if applicable, street address for principal place of business (cannot be a PO Box) and taxpayer ID number.
- Expect closing delays: as a new Rule, without widespread publicity or notice to the general public outside of the residential real estate closing community, purchasers likely will not know anything about it, and initially may not be willing to share their information with the settlement agent. But with the potential of being subject to civil and criminal penalties, settlement agents likely will not close without receiving all the necessary and required data. Closings in December 2025 will be delayed as settlement agents try to educate purchasers as to the new reality.
- REO sales contract addendums: many state contract templates have a provision requiring both parties to work with the settlement agent to help complete the closing. But REO sellers may want to edit their own contract addenda to specifically reference, and have REO buyers specifically contract to cooperate with, the new rule. Here is suggested language provided from an ALTA presentation:
Financial Crimes Enforcement Network (FinCEN) Real Estate Reporting (“FinCEN Report”). Section 1010.821 of Chapter 31 of the Code of Federal Regulations requires that certain residential real estate transactions purchased with all cash or without institutional lender financing, where at least one buyer/transferee is a legal entity, limited liability company, corporation, partnership, trust, trustee or other non-natural person, must be reported to the United States Treasury Department’s Financial Crimes Enforcement Network. IF THIS TRANSACTION IS SUBJECT TO THE FinCEN REPORT, then Seller and Purchaser shall, no later than closing, provide to the company conducting the closing the information and documentation necessary to enable the closing company to complete the FinCEN Report. Such information and documentation includes full legal name, date of birth, residential street address, and the IRS taxpayer identification number of the beneficial owners of the Purchaser, as further defined and described in the Code. Purchaser also shall pay all costs and fees to prepare and file the FinCEN Report. - Post foreclosure deeds: the Rule regulates transfers, not only “sales.” Therefore, a conveyance where no money changes hands also is subject to the rule. We often see an REO seller take title at foreclosure in one name, and then convey to a second entity in order to sell at REO. After December 1, 2025, such a transfer will be subject to the new Rule, and a servicer or lender may not want to disclose or share – or an asset manager may not have access to – the data required to be submitted to the government. REO sellers should consider at foreclosure how they want to sell the property at REO.
This new Rule will be burdensome, but if there is a bright side then it is that the Rule will apply to everyone, not just parties in specific states or parties to specific types of transactions.