On March 19, 2026, a federal court in Texas ruled that the new FinCEN residential real estate rules were unenforceable. A copy of the opinion can be found here: Flowers Title Companies, LLC v. Bessent et al, (E.D. Tex. 2026). FinCEN has indicated that reporting under the FinCEN rule for residential real estate transactions will not be required while the federal court order remains in place. For the latest information, please visit: Residential Real Estate Rule | FinCEN.gov
Community associations have spent the last several years complying with FinCEN reporting requirements under the Corporate Transparency Act. In March of 2025, after a series of lawsuits, FinCEN announced that it would no longer enforce reporting requirements against corporate entities in the United States under the Corporate Transparency Act, including condominium associations, homeowners associations, and co-ops. While reporting under the Corporate Transparency Act is no longer required, a new reporting requirement will take effect on March 1, 2026. Specifically, the residential real estate reporting rules under 31 C.F.R. § 1031.320 will take effect and are important for community associations to be aware of, as they require certain types of real estate transactions to be reported to FinCEN. While the new FinCEN reporting rules do not impact all real estate transactions, and many title companies will assist with reporting during closing, it is still important for community associations to know when certain types of real estate transactions must be reported. This article will address the most common situations community associations should be aware of that may trigger FinCEN reporting requirements for certain real estate transactions.
What is a reportable transfer under 31 C.F.R. § 1031.320?
Effective March 1, 2026, 31 C.F.R. § 1031.320 requires certain information involved in a “reportable transfer” of residential real estate to be reported to FinCEN. A reportable transfer is defined as a non-financed transfer, i.e., a cash sale, of residential property that is transferred to a legal entity or trust, and is not specifically exempt from reporting under the rules. 31 C.F.R. § 1031.320 defines residential property subject to reporting as follows:
- Real property located in the United States containing a structure designed principally for occupancy by one to four families.
- Land located in the United States on which the transferee intends to build a structure designed principally for occupancy by one to four families.
- A unit designed principally for occupancy by one to four families within a structure on land located in the United States.
- Shares in a cooperative housing corporation for which the underlying property is located in the United States.
A reportable transfer does not include any of the following:
- Grant, transfer, or revocation of an easement.
- Transfer resulting from the death of an individual, whether pursuant to the terms of a decedent’s will or the terms of a trust, the operation of law, or by contractual provision.
- Transfer incident to divorce or dissolution of a marriage or civil union.
- Transfer to a bankruptcy estate.
- Transfer supervised by a court in the United States.
- Transfer for no consideration made by an individual, either alone or with the individual’s spouse, to a trust of which that individual, that individual’s spouse, or both of them, are the settlor(s) or grantor(s).
- Transfer to a qualified intermediary for purposes of 26 CFR 1.1031(k)-1.
- Transfer for which there is no reporting person.
While many routine real transactions between owners that are financed will not be subject to reporting, there are certain circumstances in which a community association may be required to file a report with FinCEN. Examples of such situations would be as follows:
- A condominium or homeowners association acquires title to a unit or lot through the foreclosure process and later sells the unit or lot to a corporate entity or trust in a cash sale.
- A homeowners association sells common property to a corporate entity, such as a developer, in a cash sale.
- A transfer of stock in a Co-Op to a corporate entity or trust in a non-financed transaction, i.e., when a Co-Op issues a new stock certificate.
As such, if a community association is engaged in one of the above types of real estate transactions, it is important to consult with an attorney to determine if a report is required to be filed with FinCEN. A report must be filed by the last day of the month following the month in which the date of closing occurred or 30 calendar days after the date of closing, whichever is later.
What information is a community association required to report to FinCEN under 31 C.F.R. § 1031.320?
A reportable transfer typically requires the following information to be reported to FinCEN:
- Name and contact information of the Reporting Person.
- Name, address, and IRS Taxpayer Identification of the Transferee (i.e., corporate entity or trust).
- Information regarding the beneficial owners(s) of the transferee entity, such as names, addresses, dates of birth, and IRS Taxpayer Identification Numbers.
- Information regarding the transferor, including the name, address, and taxpayer information.
- A description of the real property being transferred or the shares being transferred in the case of a Co-Op.
- The purchase price and payment details.
What are the penalties for failing to report a residential real estate transaction to FinCEN?
Negligent violations of the FinCEN residential real estate reporting rule may result in a civil penalty of up to $1,430 per violation and an additional penalty of up to $111,308 for a pattern of negligent activity. Willful violations may result in significantly higher penalties under the Bank Secrecy Act. In those circumstances, civil penalties may include the greater of $71,545 or the value of the transaction involved, capped at $286,184. Criminal penalties may also apply and can include imprisonment for up to five years, a criminal fine of up to $250,000, or both. These penalty amounts are subject to periodic inflation adjustments. Accordingly, while situations in which a community association must file a report will likely be rare, boards and property managers should understand when reporting may be required, given the potentially significant civil and criminal consequences for failing to comply with the rule.
Key Takeaways for Illinois Community Associations
The Corporate Transparency Act may no longer apply to most condominium associations, homeowners associations, and co-ops, but the FinCEN residential real estate reporting rules under 31 C.F.R. § 1031.320 are a separate compliance obligation that becomes effective on March 1, 2026. While many routine, financed sales will not trigger reporting, community associations that acquire and later sell property, convey common element property, or issue co-op shares in a cash transaction to a legal entity or trust must carefully evaluate whether a report is required. Given the significant civil and criminal penalties under the Bank Secrecy Act for noncompliance, boards and property managers should be proactive rather than reactive when unusual real estate transactions arise. Key takeaways for Michigan and Illinois community associations include:
- Community associations are not exempt from the new FinCEN rule, which applies to certain non-financed residential real estate transfers to entities or trusts, not traditional mortgage-backed sales to individuals
- Community associations that foreclose on a unit or lot and later sell it, or sell common areas, in a cash transaction to an LLC, corporation, or trust may have reporting obligations.
- Co-op shares in cash transactions to entities can also trigger reporting requirements.
- Penalties for negligent or willful violations can be substantial, including significant civil fines and potential criminal exposure.
When in doubt, community associations should consult experienced legal counsel before closing a transaction that may fall within 31 C.F.R. § 1031.320. Careful review before the closing table is far less expensive than defending against a FinCEN enforcement action after the fact.
Kevin Hirzel is the Managing Member of Hirzel Law, PLC, and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association law, and real estate law. Mr. Hirzel is a fellow in the Community Associations Institute’s College of Community Association Lawyers, a prestigious designation given to fewer than 200 attorneys in the country. Mr. Hirzel has been recognized as a Michigan Super Lawyer in Real Estate Law by Super Lawyers Magazine, a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine, and as a Best Lawyer in Real Estate Law by U.S News and World Report’s Best Lawyers Publication. Hirzel Law, PLC represents community associations, condominium associations, cooperatives, and homeowners associations in Michigan and Illinois. He may be reached at (248) 450-0339 or kevin@hirzellaw.com.
