By Sara J. Cafaro, Esq.
On February 16, 2024, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) proposed a new rule to combat and deter money laundering in residential real estate transactions. The Anti-Money Laundering Regulations for Residential Real Estate Transfers Rule (the “Rule”) required certain individuals in real estate closings, known as “reporting persons,” to file a report upon specific types of residential real estate property transfers.
The Rule applied to non-financed transactions, meaning purchases made in cash or with a loan from a financial institution not subject to AML program requirements and Suspicious Activity Report reporting obligations. The Rule’s reporting obligations were triggered when an entity served as the buyer, such as an LLC or a trust, as opposed to an individual. Because these types of buyers can obscure the identity of the true owner, the Rule sought to require the disclosure of details about the transaction and the individuals behind the entity or trust to increase transparency and help prevent money laundering.
Originally set to take effect on December 1, 2025, FinCEN issued a temporary order granting exemptive relief from the reporting requirements until March 1, 2026. This extension was intended to give the real estate industry more time to prepare for and comply with the new regulations.
The Rule was short-lived. Just 19 days after it took effect, on March 19, 2026, the U.S. District Court for the Eastern District of Texas vacated the Rule in the case of Flowers Title Cos., LLC v. Bessent, Case No. 6:25-cv-127 (E.D. Tex. Mar. 19, 2026). With an analysis centered around the Bank Secrecy Act’s (BSA) suspicious transaction provision, the Court held that the Rule exceeds FinCEN’s authority under the BSA.
FinCEN argued that under 31 U.S.C. § 5318(g)(1), it was authorized to require financial institutions to report suspicious transactions relevant to a possible violation of law or regulation and claimed that non-financed residential real estate transactions involving entities or trusts are categorically suspicious. The Court disagreed. It rejected FinCEN’s position stating that FinCEN’s explanations are “vague, conclusory, and unpersuasive” and the fact that some bad actors have conducted non-financed real estate transactions does not make such transactions categorically ‘suspicious’.” Id., at 12. In addition, the Court held that the Rule also violated the Administrative Procedures Act.
The Texas ruling has vacated the Rule nationwide for the time being. However, this is inconsistent with other rulings that have upheld the Rule. See Fidelity Nat’l Fin., Inc. v. Bessent, No. 3:25-CV-554-WWB-SJH (M.D. Fla. Feb. 19, 2026). The split among federal courts may well result in an appellate litigation. For the time being, however, the reporting obligations created under the Rule are suspended and not in effect. Egan, Flanagan and Cohen, P.C. we will continue to monitor any developments and provide updates as they arise.
About the Author: Sara J. Cafaro, Esq. is a real estate attorney practicing law with Egan, Flanagan and Cohen, P.C. She was raised and educated in Western Massachusetts, and she represents local individuals and entities in both residential and commercial real estate transactions.
This post is purely informational. Nothing herein constitutes legal advice or the formation of an attorney-client relationship with any reader. To review your specific legal circumstances, reporting obligations, or transactional needs with an attorney, you may contact Attorney Cafaro at (413) 737-0260 or by email at sc@efclaw.com.
