Countdown to Compliance: Questions on FinCEN’s residential rule answered

A new, comprehensive residential real estate transaction reporting rule from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is rapidly nearing implementation, and many in the industry have questions.

In a webinar hosted recently by October Research, Amy Gregory, president of the Florida Agency Network, and T.J. Harrington, senior vice president national product and sales enablement with Stewart Title Insurance Co., discussed the various impacts and legal challenges the rule stands to bring with it. You can watch the free webinar here.

During the discussion, attendees submitted questions they wanted answers to. Time ran out before all could be addressed. Gregory provided responses to many of the remaining questions after the webinar, which can be read below:

• Q: What property types are this for? AG: The rule applies to residential real property located in the U.S.,  such as single-family homes, townhomes, condos and cooperatives. The rule also applies to vacant or umimproved land with an intent to improve for residential purposes.
  

• Q: How do we know if the lender reports? AG: If there is a question on whether or not the lender reports, a suggestion would be to email the lender to inquire and save the email in your closing file.
  

• Q: What if it’s a private lender? AG: Reporting will be required on transactions that have a private lender.

• Q: If the parties agree to a designated reporting agent and that designated agent does not report, where does the liability fall? AG: It is recommended that you have a signed agreement with the designated agent as to their role.
  
  
• Q: Is reporting required on cash purchasers for companies only or does it also include cash purchases on individual persons as well? AG: The reporting is currently required for entities and trusts, not individuals.

• Q: Do we have to collect information from a seller on a covered transaction, if they are not an entity or trust? AG: For the closing transaction that require reporting, you will need to collect information from the sellers and buyers.

• Q: What happens if you do a cash purchases as “individuals,” then put into your personal trust later? AG: Once the property is placed in the trust, the transaction is subject to reporting.

• Q: In my typical case, revocable trust is formed and the settlor conveys his/her residential property to the trust. No cash changes hands. Does this need to be reported? AG: Yes, there is not a dollar threshold for the new rule.

• Q: If there is no consideration (exempt) to a trust or entity, it is NOT reportable? AG: Yes, there is not a dollar threshold for the new rule.

• Q: Does this rule apply to individual purchasers of investment residential real estate? AG: The reporting is currently required for entities and trusts, not individuals.

• Q: Are we required to report separately for all entity payees paid on either side of the settlement statement? Does this apply to assignment fees, realtor commission and vendors, such as title examiners, repair invoices to contractors/cleaning services, moving companies, couriers, etc.? AG: The reporting information will be given for the buyers and sellers.

• Q: Can you speak to how this plays out in split closing markets (two title companies involved in a closing, one represents the buyer and typically issues the title policy. One represents the seller and prepares the deed, obtains necessary seller payoffs, etc.)? AG: Both title companies will need to confirm which company will be reporting. It has been suggested that the “settlement agent” listed on the closing statement may take responsibility for the reporting, however, that will need to be confirmed until a standard practice is set.

• Q: Can you explain why a death/divorce/bankruptcy on the seller side would make it exempt? AG: FinCEN has advised that these are common, lower-risk transfers.

• Q: For builders, are they going to have to fill this out on every cash transaction with an entity? AG: If the buyers are an entity or trust, the file will need to be reported.

• Q: What if someone QCDs from themselves to their own trust? AG:Once the property is placed in the trust, the transaction is subject to reporting.

• Q: The liability for compliance falls on the title-settlement agent/escrow company.Do you foresee the responsible enforcement agency pursuing the matter (fines, etc.) beyond the title agent and going after the underwriters? AG: No, based on the list of responsible parties for reporting.

• Q: What if you do a deed reserving enhanced life estate (ladybird deed)? AG: If all of the parties are individuals, they would not be subject to reporting.

• Q: If we are recording a deed as a transfer to a trust without consideration (for estate planning purposes) - that is NOT following a cash purchase by an individual - does that require reporting? AG:Yes, there is not a dollar threshold for the new rule.

• Q: Who is held responsible for the reporting in a courtesy closing scenario? AG: The settlement agent is the first responsible party for reporting.

• Q: Is it reportable on buyer and seller end? AG: Yes

• Q: What about a buyer who purchases in his trust - and he is the trustee of the trust? Does this fall under the FinCen rule? AG: Yes, if the buyer is a trust, the file is subject to reporting.

• Q: Regarding trust(s), when purchasing and having to list the beneficiaries, where is the line drawn on listing all beneficiaries of the trust (do we list all grandchildren?) AG:The beneficial owner of a transferee trust is any individual who is a trustee or otherwise has authority to dispose of transferee trust assets; is a beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or to withdraw, substantially all of the assets of the transferee trust; is a grantor or settlor of a revocable trust; or is the beneficial owner of an entity or trust that holds one of these aforementioned positions in the trust.

• Q: Why do they say “qualified“ 1031 exchanges on FinCEN? AG: Qualified 1031 exchanges are exempt from reporting.

• Q: Is the settlement agent responsible for confirming the accuracy of the information provided that is ultimately used in what is reported? AG: The settlement agent is able to rely on the information provided by the sellers and buyers as long as they do not have knowledge of facts that would reasonably call into question the reliability of the information.

• Q: If we are recording a deed from a spouse to the ex-spouse pursuant to a separation agreement and in that deed, it lists consideration (as required by the SA), do we have to report this? AG: The reporting is not required for individuals.

• Q: What if the beneficiaries of the trust are minors? AG:The beneficial owner of a transferee trust is any individual who is a trustee or otherwise has authority to dispose of transferee trust assets; is a beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or to withdraw, substantially all of the assets of the transferee trust; is a grantor or settlor of a revocable trust; or is the beneficial owner of an entity or trust that holds one of these aforementioned positions in the trust.

• Q: What about trusts that have contingent beneficiaries? AG:The beneficial owner of a transferee trust is any individual who is a trustee or otherwise has authority to dispose of transferee trust assets; is a beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or to withdraw, substantially all of the assets of the transferee trust; is a grantor or settlor of a revocable trust; or is the beneficial owner of an entity or trust that holds one of these aforementioned positions in the trust.

• Q: Does this only apply to entities and trusts? AG: Yes

• Q: Will the targeted GTOs remain in effect after Dec. 1, or will the new rule replace those? AG: The new rule will replace the GTOs.