MDK Client Alert: A Rule in Limbo: FinCEN’s RRE Reporting Authority

Article Highlights

• Texas Decision: Court vacated the RRE Rule nationwide, finding FinCEN exceeded statutory authority.

• Reporting Suspension: RRE Rule reporting not currently required; no liability for non-filing while the order remains in force.

• Still Unsettled: Florida upheld the rule; Texas appeal (and possible stay) could change things fast.

• Do Now: Keep your playbook ready as a stay could reinstate obligations on short notice; continue deal-by-deal controls and any applicable GTO compliance.

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Background

The Financial Crimes Enforcement Network’s (“FinCEN”) significant expansion of federal anti‑money laundering obligations into the residential real estate sector is now in question. The Residential Real Estate Reporting Rule (“RRE Rule”) has only been effective since March 1, 2026. The rule was designed to address FinCEN’s longstanding concern that non-financed residential real estate transactions present heightened money laundering risks because they occur outside the traditional banking system and transfer property into companies and trusts often with unknown owners and beneficiaries.  

The RRE Rule adopted a nationwide framework, replacing previously used Geographical Targeting Orders. The new RRE Rule requires “reporting persons”, defined as settlement agents, title companies, escrow agents, attorneys, and others, to file a Real Estate Report with FinCEN for covered transactions. Generally, and subject to specific exclusions, the RRE Rule applies to non-financed transfers of residential real property to legal entities or trusts, regardless of purchase price, and requires disclosure of information concerning:

• The reporting person,

• Beneficial ownership information of the Transferee;

• The Transferor (and beneficial ownership information, if applicable),

• The property being transferred, and

• The source and method of closing funds.

In a prior article on our blog, we discussed how the RRE Rule would impact foreclosure sales, deeds in lieu of foreclosure, timeshare transactions, and other nontraditional residential transfers, and we outlined the operational challenges facing reporting persons tasked with collecting sensitive ownership information from transferees and transferors.

The landscape of the RRE Rule continues to shift with FinCEN suspending reporting obligations, along with the penalties for not reporting applicable residential real estate transactions, following the decision in Flowers Title Companies, LLC v. Bessent.  

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The RRE Rule Court Battles

Since the RRE Rule was finalized, multiple lawsuits have been filed challenging FinCEN’s authority to issue the rule and alleging constitutional and administrative law defects. Two recent federal decisions, reaching different conclusions, have placed the future of the rule in significant doubt. ‍

    A Decision Against the RRE Rule

In Flowers Title Companies, LLC v. Bessent, the United States District Court for the Eastern District of Texas held that FinCEN lacked statutory authority under the Bank Secrecy Act to promulgate the RRE Rule and vacated the rule in its entirety.

The court focused on FinCEN’s reliance on 31 U.S.C. § 5318(g)(1) (authorizing reporting of “suspicious transactions”) and § 5318(a)(2) (authorizing certain compliance procedures). In the court’s view, neither provision permitted FinCEN to require blanket reporting for an entire category of residential real estate transactions without individualized suspicion. The court was particularly critical of FinCEN’s decision to treat all non-financed transfers to entities or trusts as inherently suspicious, noting that there are numerous legitimate reasons for cash purchases, including avoiding financing costs and delays.

The court emphasized that the Bank Secrecy Act has historically tied reporting obligations to financial institutions and transaction‑level suspicion, and it rejected FinCEN’s attempt to transform an entire class of lawful real estate transactions into per se reportable activity.

Concluding that the rule exceeded FinCEN’s statutory authority and that the deficiencies were unlikely to be cured on remand, the court applied the default Administrative Procedure Act remedy of vacatur, effectively nullifying the rule. By vacating the rule in its entirety, rather than remanding it for further consideration, the court effectively nullified the RRE Rule on a nationwide basis unless and until the decision is stayed or reversed on appeal.

As a result, FinCEN announced on its website, “In light of a federal court decision, 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 order remains in force.”

     A Decision Supporting the RRE Rule

The Middle District of Florida upheld the RRE Rule against statutory and constitutional challenges in Fidelity National Financial, Inc. v. Bessent. In contrast to the Texas court, the Florida court viewed FinCEN’s authority more expansively, concluding that Congress intended the Bank Secrecy Act to evolve with emerging money‑laundering risks and that non‑financed residential transfers to opaque ownership structures fall within that evolving mandate. The Florida court concluded that FinCEN acted within its authority under the Bank Secrecy Act, reasoning that non-financed residential transfers to legal entities and trusts are materially different from traditional residential transactions involving regulated financial institutions. According to the court, these transactions fall within FinCEN’s mandate because they present a recognized risk of being exploited for money laundering and other illicit activity.

     An Uncertain Future for the RRE Rule

FinCEN is expected to appeal the decision in Flowers Title. A key unresolved issue is whether FinCEN will seek, and obtain, a stay of the vacatur pending appeal, which could reinstate reporting obligations on short notice. Additionally, we do not know how other courts will determine other pending lawsuits regarding the RRE Rule.

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Takeaways

Many organizations invested significant time and resources preparing for the RRE Rule reporting requirements by developing disclosure forms and workflows that are now on hold.  

Until there is further guidance from appellate courts or FinCEN itself, reporting persons should consider the following:

1. Monitor developments closely. The legal landscape is evolving rapidly, and a single appellate ruling could significantly change the compliance calculus.

2. Avoid dismantling compliance infrastructure prematurely. Even if enforcement is currently stayed or uncertain, the rule could be reinstated in whole or in part. As a result, organizations should consult counsel before making permanent operational changes in response to the current uncertainty.

3. Evaluate transaction-specific risk. Certain transactions and existing or future Geographical Targeting Orders may continue to warrant enhanced diligence regardless of the rule’s fate.

We are continuing to monitor developments as the future of the RRE Rule is determined by the courts and will provide updates as additional decisions are issued or as appellate courts weigh in on this important issue.