Potential New Regulation in the Real Estate Industry

new financial crimes enforcement network FINCEN

On December 6, 2021, the Biden administration continued its broad plan to fight corruption. Financial Crimes Enforcement Network (FINCEN) announced an Advanced Notice of Proposed Rulemaking (ANPRM).  The ANPRM seeks comment on a proposed rule that would increase transparency in the U.S. commercial and residential real estate markets to combat illicit financial activity. The proposed rule would impose reporting requirements for certain all-cash real estate transactions.

How We Got Here

In the last 15 years, the real estate industry has become scrutinized for potential abuses by money launderers. The fact that an individual can purchase real property for cash with virtually no reporting requirements by any entity, makes it ripe for abuse and government regulation.

This is not to say that all-cash real estate transactions are unregulated. Since 2016, FINCEN has issued “Geographic Targeting Orders”. These orders require title insurance companies in the city where the order has been issued to make certain disclosures regarding all cash transactions to the government. The information they are required to report includes the price and address of the real estate purchased, as well as ownership information.

What This Means For The Future Of Real Estate

The proposed regulation would expand on that reporting by scope and stakeholder. The proposed regulation would apply to the entire country and the obligation to report would not be limited to title companies but would expand to real estate agents, brokers, escrow agents, as well as real estate lawyers and their firms.

The proposed rule is only in its infancy and still being formed. The purpose of the ANPRM is to determine the appropriate stakeholder whom the regulation should cover and the potential impact in time and money. Only time will tell who the rule will cover and what information would need to be provided. If anything the ANPRM provides us a warning of what is to come.

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