FinCEN Sued over Mandated Real Estate Reporting

 Lisa L Delaney

 Last April, a Texas-based settlement service provider, Flowers Title Company, LLC (“Flowers”) sued the U.S. Treasury’s Financial Crimes Reporting Network, known as

“FinCEN,”  in the U. S. District Court of Eastern District of Texas, Civil Action No. 6:25‑CV‑0027.  A month later, Fidelity National Financial, Inc. and Fidelity National Title Insurance Company (“FNF”) filed a similar suit in United States District Court, Middle District of Florida in Civil Action No. 3:25-cv-00554.

 These two cases challenge FinCEN’s rules, scheduled to take effect on December 1^st, with the goal of thwarting money-laundering by mandatory reporting on all residential purchases any amount by non‑individual entities, such as Corporations, LLC’s, trusts, etc., without an institutional mortgage.   The proposed rules also include no low or nominal consideration, or those transactions financed with a private mortgage.  These reports are mandated with no other evidence or indicia of illegal or suspicious financial or money‑laundering activity, other than the fact that an entity is taking title to residential property without an institutional mortgage.

 FinCEN exempts a few transfers, including those following death or divorce, and transfers to a trust for the grantor’s benefit and/or their spouse, but there are no specific exemptions for transfers from a trust back to the grantor nor to a trust for the benefit of the grantor’s children and other descendants.

 The mandated reports, consisting of 111 questions, are detailed and require the submission personal information of both the buyer and seller, including their bank account information, with 38 questions repeated for each principal buyer and 34 questions repeated for each seller, which can quickly add up to 200 or more mandated reported data.  FinCEN requires the seller’s information based solely on the buying entity without any suspicion the seller is interrelated to the buyer or connected to the buyer’s choice of taking title in an entity and not using an institutional mortgage.

 To date, FinCEN has only provided the111 questions, but has not provided the actual reports, thereby denying mandated reporters the opportunity to create training materials in the proper use of the government’s computer program and software.

 The two complaints include the following advocacy positions:

• There is nothing inherently suspicious about buyers using their own money. 
• Transferring property to a trust or legal entity without financing is legal and not inherently suspicious. 
• The proposed Rule will “ride roughshod” over private interests of routine real estate transactions. 
• Private companies are being conscripted into performing government surveillance. 
• FinCEN lacks authority to regulate or mandate reports on intrastate commerce without a connection to interstate or foreign commerce. 
• Mandating reports of all covered transactions with no suspicion of illegal activity exceeds any permissible warrantless search.
• The proposed rule exceeds Congress’ power to regulate interstate commerce and was promulgated “contrary to constitutional rights, power, privilege, or immunity” in violation of 5 U.S.C. § 706(2)(B).

These cases are similar to FinCEN’s now-withdrawn requirements under the Corporate Transparency Act (CTA) that attempted to require all businesses that file at its state secretary of state’s office, to also file mandated annual FinCEN reports on its business and principal.  This proposal was curtailed and canceled last much when FinCEN issued an interim final rule limiting CTA only to “foreign reporting companies.”   

The various CTA cases found that FinCEN’s attempted rule exceeded the Treasury Department’s constitutional powers. The Texas Court in Top Cop Shop, Inc. v. Garland, which includes a nation-wide injunction, found the CTA is likely unconstitutional and FinCEN does not have the right to regulate interstate commerce nor is the mere existence of a business entity, by itself, an act of commence, and adds “… the Commerce Clause does not justify regulating all companies based on nothing more than fear that a reporting company might shelter a financial criminal.”

Both the Flowers and FNF cases include prayers for declaratory and injunctive relief.  Neither complaint cites nor refers to the various CTA cases, although it is probable the same or similar arguments will be raised that FinCEN, through the Treasury Department and Congress, exceeded its constitutional powers, and citizens should have the ability to purchase a residence without an institutional purchase money mortgage and place title in an entity rather than their own names, which is not, by itself, “suspicious activity.”  

It is hoped the Courts will similarly find FinCEN’s real estate reports are likely unconstitutional and issue a permanent injunction against mandated real estate reporting on routine real estate transactions.

Co-chair of REBA’s Title Insurance and National Affairs Section, Lisa Delaney, owns the Braintree firm Carvin & Delaney, LLC, concentrating her practice on large commercial transactions, where she handles complex title research, providing detailed analysis of clear and concise facts. She negotiates and drafts commercial contracts with a focus on leasing and purchase agreements. Lisa can be contacted at ldelaney@carvindelaney.com.

Editor’s Note: REBA’s Title Insurance and National Affairs Section is scheduled to host two webinars on FinCEN’s mandated real estate reporting.  Former Association president Ruth Dillingham of Dillingham Consulting LLC will present the rule’s details and requirements on Wednesday, September 25th at noon and on Thursday, October 16^th at noon a speaker will provide a tutoring session on inputting data into FinCEN’s computerized reports, providing access to the government’s software is then publicly available.

These webinars could be postponed or canceled based on the Flowers, FNF or other lawsuits, or whether FinCEN, like with the CTA, revises the mandated real estate reporting to only foreign entities.