Simon PLC Attorneys & Counselors – June 2026 Memorandum
FinCEN’s Residential Real Estate Reporting Requirements Vacated By Courts
Troy, MI. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) implemented the Anti-Money Laundering Regulations for Residential Real Estate Transfers (the “Rule”) which took effect on March 1, 2026. The Rule required reporting of certain non-financed residential real estate transfers to entities and trusts, imposing obligations that would have applied to title companies, closing agents, title insurers, closing attorneys and other real estate settlement professionals involved in such transfers and imposing civil penalties under the Bank Secrecy Act for non-compliance or more serious civil penalties and potential criminal liability for any willful noncompliance. However, there is currently a nationwide vacatur of this Rule as a result of a March 19, 2026 ruling by the U.S. District Court for the Eastern District of Texas in the case of Flowers Title Companies, LLC v. Scott Bessent, in his official capacity as U.S. Secretary of Treasury, et al, Case No. 6:25-cv-127-JDK. As a result, reporting persons are not currently required to file real estate reports with FinCEN and are not subject to liability if they fail to do so while the court’s order remains in force. Consequently, FinCEN recently filed an appeal of the court’s decision to the U.S. Court of Appeals for the Fifth Circuit on May 11, 2026.
The plaintiff in Flowers Title Companies, LLC challenged the Rule as unlawful under the Administrative Procedure Act (the “APA”). Plaintiff claimed that the Rule exceeded FinCEN’s statutory authority provided by the Bank Secrecy Act (the “BSA”) . If the BSA authorized the Rule, plaintiff argued, then the BSA violated the nondelegation doctrine, exceeded Congress’s enumerated powers, and violated the Fourth Amendment. The parties subsequently cross-moved for summary judgment agreeing that if the BSA did not give FinCEN the authority to enact the Rule, then the court need not address the plaintiff’s other claims.
The court granted the plaintiff’s motion for summary judgment and denied FinCEN’s cross-motion, holding that the Rule exceeded FinCEN’s statutory authority under the BSA and therefore, ordering the Rule vacated in its entirety. The court found that the Rule required parties involved in real estate closings to report the details of any non-financed transfer of residential real property involving a transferee entity or trust to FinCEN. This reporting requirement applied regardless of dollar threshold or geographic location. These reporting obligations fell primarily on real estate closing and settlement agents, title insurance underwriters, and others in the closing chain, requiring these parties to disclose beneficial ownership, payment method, and other transaction details. The court’s analysis began and ended with a single question: whether the BSA authorized FinCEN to promulgate such a Rule. FinCEN argued that the BSA’s suspicious transaction provision as well as its procedures provisions gave them such authority. In granting plaintiff’s motion, the court held that agencies, such as FinCEN, are mere creatures of statute and as such, must point to explicit Congressional authority justifying their decisions. Therefore, when reviewing whether an agency acted within its statutory authority, a court does not defer to the agency’s interpretation but rather it is the court that decides “whether the law means what the agency says.” Loper Bright Enters. v. Raimondo, 603 U.S. 369, 392 (2024). In reviewing these provisions of the BSA, the court found no such authority was given to FinCEN and rejected its arguments in their entirety.
FinCEN predominantly relied in support of the Rule’s enactment, 31 U.S.C.§ 5318(g)(1), which authorizes FinCEN to require financial institutions to report “any suspicious transaction relevant to a possible violation of law or regulation”. Plaintiff argued that this provision did not authorize the Rule because there is nothing “suspicious” about non-financed residential real estate transactions involving entities or trusts. FinCEN disagreed, arguing that the Rule identifies, and explains why, non-financed transfers of residential real property to certain legal entities and trusts are a class of suspicious transactions. FinCEN explains that non-financed transfers do not involve financial institutions subject to anti-money laundering laws, and thus such transfers can be and have been exploited by illicit actors of all varieties. In support of such conclusion, FinCEN cited numerous public law enforcement actions where defendants were prosecuted for money laundering, presumably by conducting non-financed residential real estate transactions. The court in analyzing this argument looked to the statute and stated that all statutory interpretation begins with the text and that in enacting a statute, the legislature says in a statute what it means and means in a statute what it says and here, the key term is “suspicious,” which is not defined in the statute. Applying the “fundamental canon of statutory construction,” the Court interprets the term “as taking [its] ordinary meaning at the time Congress enacted the statute.” E.g., New Prime Inc. v. Oliveira, 586 U.S. 105, 113 (2019) (citation modified). Citing Merriam-Webster Dictionary, “suspicious” means “tending to arouse suspicion” and that “suspicion” means “the act or an instance of suspecting something wrong without proof or on slight evidence.” Thus, to be “suspicious,” a transaction must “tend to arouse” the belief that “something [is] wrong” based on facts or circumstances that do not amount to proof but may be based on “slight evidence.” The term as used in § 5318(g)(1), moreover, the court found limited FinCEN’s rule-making authority. See Mexican Gulf Fishing Co. v. U.S. Dep’t of Com., 60 F.4th 956, 965 (5th Cir. 2023). This means that § 5318(g)(1) does not give FinCEN the authority to regulate all transactions—but only those transactions that tend to arouse the belief that something is wrong. As such, the court found FinCEN’s explanations 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.” If it did, then nearly every type of transaction imaginable would be “suspicious,” and § 5318(g)(1) would grant FinCEN far-reaching powers no one had contemplated. Therefore, based on the record, the court concluded the “suspicious” provisions of the BSA did not authorize FinCEN to treat every one of these transactions as “suspicious.”
Drawing its attention to the procedures provision of the BSA, FinCEN alternatively argued that 31 U.S.C. § 5318(a)(2), which authorizes the Secretary of the Treasury to require financial institutions to “maintain appropriate procedures, including the collection and reporting of certain information,” independently authorized the Rule. The court rejected this argument as well, holding that the phrase “including the collection and reporting of certain information” modifies “procedures,” meaning FinCEN may require institutions to maintain reporting procedures but may not impose a freestanding substantive reporting obligation. The court found that FinCEN incorrectly interprets the phrase “including the . . . reporting” to grant it independent, standalone authority to require reports from financial institutions. This interpretation, the court found, had several problems. First, it changes the meaning of the phrase “maintain appropriate procedures” from a requirement to maintain certain methods or forms to a substantive obligation to report information. Cf. Bittner, 19 F.4th at 745. FinCEN’s interpretation, the court held, smuggles expansive reporting authority into a provision that is focused on procedures. See Biden v. Nebraska, 600 U.S. 477, 517 (2023) (Barrett, J., concurring) Importantly, the court found that FinCEN’s broader reading of Section 5318(a)(2) would render the more targeted suspicious transaction reporting authority in Section 5318(g)(1) superfluous, which is a result courts are bound to avoid, and that would allow FinCEN to circumvent the express congressional limitation that these reports be tied to suspicious transactions.
Finding that there was no authority for FinCEN to promulgate the Rule, the court determined that the Rule violated the APA. As a result, Plaintiff sought vacatur of the Rule. “Vacatur is the only statutorily prescribed remedy for a successful APA challenge to a regulation.” Franciscan All., Inc. v. Becerra, 47 F.4th 368, 374–75 (5th Cir. 2022). And vacatur under the APA is “not party restricted.” Career Colls. And Schs. of Tex. v. U.S. Dep’t of Educ., 98 F.4th 220, 255 (5th Cir. 2024). “When a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioners is proscribed.” Id. The court considered whether to depart from vacatur as the default remedy but declined, finding both that the Rule’s deficiencies were serious enough that FinCEN would be unlikely to justify the Rule on remand and that returning to the pre-Rule status quo would not be unduly disruptive given that the Rule had only been in effect since December 1, 2025.
Simon PLC Attorneys & Counselors will continue to monitor this case as it goes through the appellate process. However, as it currently stands, FinCEN has formally suspended enforcement of the Rule and has since confirmed that no reporting is required while the court order remains in effect.
N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.
