The Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of the Treasury, has introduced a new rule effective March 1, 2026 requiring reporting for certain residential real estate transactions to combat money laundering and other illicit financial activity. But what sorts of transfers mandate reporting? And which don’t? This is a key issue for San Jose real estate attorneys and businessmen working to move property or form companies.
What Transactions Are “Covered” by the Rule?
For purposes of the FinCEN’s Residential Real Estate Rule, a transaction needs to be reported only when all three factors are present at once:
1. The Property Is Residential Real Estate
A reportable transfer must involve U.S. residential real property, including:
- Single-family homes, townhouses, condominiums and cooperatives
- Buildings with two or more dwelling units used for 1–4 families
- Vacant or unimproved land intended for future residential construction. Properties with a minor commercial component (such as a residence above a retail space) may also be covered.
2. The Transfer Is “Non-Financed”
It is a transfer that is not financed by a financial institution subject to anti–money laundering requirements and does not trigger Suspicious Activity Report (SAR) obligations. This includes:
- All-cash sales
- Private Lender Transactions Not Subject to AML/SAR Requirements
- Unsecured loans, even from banks, because the loan isn’t secured by the real property.
3. The Transferee Is an Entity or Trust
Any covered transfer must be made to a legal entity (an LLC, corporation, partnership) or trust, and not directly to an individual in their own name. Foreign corporation, partnerships and trusts are required to comply where U.S. residential property is at-issue and the transaction is non-financed, unless otherwise exempt.
4. No Exemption Applies
Even if all of the above criteria are met, a transaction is not reportable if it qualifies for one of the exemptions under FinCEN’s rule.
Common Exemptions: What’s Out?
FinCEN identifies specific circumstances in which reporting is not required, even when the general coverage criteria are met. These exclusions serve to prevent unnecessary reporting of routine, low-risk or statutory transfers. Common exemptions include:
Transfers Not Considered Reportable
- Transfers to individuals: No report is necessary when the transferee is a natural person (not an entity or trust).
- Transfers resulting from death: Property passing under a will or by intestacy.
- Transfers due to divorce or dissolution of marriage: Not considered reportable changes in ownership.
- Transfers to a bankruptcy estate or under court supervision: These are excluded by law, too.
- Easement transfers: Interests conveyed without affecting fee ownership.
- Transfers with no reporting person: Where closing/settlement involves no covered person, the rule does not apply.
- Qualified intermediary transfers for like-kind (1031) exchanges: Recognized as non-reportable under IRC sections’ below.
What This Means for Clients
While FinCEN’s reporting requirement is not mandated for every real estate transaction, clients need to start getting ready now. Although all of the above elementsmust be satisfied in order to have a covered transaction, it is frequently up to the closing professional who submits an Real Estate Report, and perhaps to lawyers more than others, who must ensure that ownership information is gathered and confirmed.
Law firms should consider:
- The process of reviewing how transactions go through to find what is reportable sales at the front end
- Advising clients about entity-based purchases that will permit reporting
- Providing title and settlement service providers with the ability to report more effectively together.
Bottom Line
FinCEN’s Residential Real Estate Rule is applicable to certain all-cash transfers to entities and trusts, and not every property transaction. Knowing the ins and outs is important for clients who purchase real estate in San Jose, and Strategy Law can advise clients on property purchases, trust planning, entity structuring, and more.
Common Questions:
1. What is the new FinCEN Residential Real Estate Rule?
The rule, effective March 1, 2026, requires certain professionals involved in real estate closings (such as attorneys and settlement agents) to report information to the U.S. Treasury regarding “non-financed” transfers of residential real property to legal entities or trusts. The goal is to increase transparency and prevent money laundering.
2. When does this rule take effect?
The rule officially applies to all “covered” transactions that close on or after March 1, 2026.
3. Does this rule apply to commercial real estate?
The rule specifically targets residential property. However, “mixed-use” properties (such as a residence located above a retail storefront) are covered. Large-scale commercial office buildings or industrial warehouses are generally not subject to this specific residential rule.
4. What should San Jose business owners and investors do now?
If you frequently use LLCs or Trusts for real estate acquisitions in the Bay Area, you should:
Review your structures: Ensure you have clear documentation regarding “Beneficial Owners” to provide to your closing agent.
Consult with Legal Counsel: Strategy Law can help you determine if your planned entity formation or property transfer triggers these new federal requirements.
This blog is written as of February 2026. Recommendations and legal requirements are changing rapidly, so please continue to review our legal updates or review postings on relevant government websites.
All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Strategy Law, LLP does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement including, without limitation, execution of Strategy Law, LLP’s formal legal services agreement, and with respect to specific factual situations. No blog constitutes a guaranty, warranty, or prediction regarding the result of any legal matter discussed in the blog or any representation
