FinCEN Issues Guidance on Residential Real Estate Rule After Texas Court Vacates Regulation

Federal regulators have moved to clarify reporting obligations for the real estate industry following a court ruling that struck down a nationwide anti-money laundering requirement for certain property transactions.

The Financial Crimes Enforcement Network (FinCEN) published three new frequently asked questions on Monday addressing the current status of its Residential Real Estate Rule, which was invalidated by a federal court in Texas earlier this year. The guidance makes clear that title professionals and other reporting persons have no current obligation to file Real Estate Reports and will not face penalties for non-compliance while the court's order remains in force.

The underlying ruling came in March, when the U.S. District Court for the Eastern District of Texas found that FinCEN had exceeded its legal authority in issuing the rule. That decision effectively suspended the reporting framework nationwide for covered residential real estate transactions. FinCEN has since filed a notice of appeal.

In addition to clarifying that no reporting obligations exist during the appeal period, FinCEN also stated that if the Texas ruling is ultimately overturned, companies will not be required to go back and file reports for covered transactions that occurred in the period during which the court’s order was in force. FinCEN also added that it will issue further guidance on when compliance requirements would resume should the rule be reinstated.

Separate from the Texas case, two other federal courts have rejected separate legal challenges to the rule, underscoring the unsettled legal landscape as the appeals process plays out.

Fidelity National Financial and Fidelity National Title Insurance Company are seeking review from the Eleventh Circuit after a Florida federal court sided with FinCEN and upheld the agency's authority under the Bank Secrecy Act. A separate challenge filed in Puerto Rico raises similar arguments,  including alleged violations of the Administrative Procedure Act and concerns about compliance burdens, and seeks to block enforcement of the rule within that jurisdiction.

ALTA has continued to actively engage on this issue at both the regulatory and legislative levels. During its annual Advocacy Summit earlier this month, ALTA and CLTA members met with members of Congress to share concerns about the rule's impact on title professionals.

ALTA has also submitted formal recommendations to FinCEN Director Andrea Gacki, calling for targeted changes that would reduce compliance burdens without undermining the rule's anti-money laundering objectives. Among the key requests: establishing a minimum dollar threshold to exclude low-value transfers from reporting requirements;  exempting transactions where a seller simply moves property into an entity they already control; excluding foreclosure-related transfers, and; narrowing payment information collection to what settlement agents can realistically obtain. ALTA has also asked FinCEN to reconsider collecting seller tax identification and financial information, arguing the law enforcement value does not justify the added workflow burden.