The legal fight over the Financial Crimes Enforcement Network’s (FinCEN) Residential Real Estate (RRE) Rule is intensifying.
The American Land Title Association (ALTA) filed an amicus brief on August 7 supporting an appeal by Fidelity National Financial (FNF) of a federal court decision that had upheld FinCEN’s RRE rule.
The filing came as the U.S. Chamber of Commerce, the National Federation of Independent Business Small Business Legal Center (NFIB), and the National Association of Home Builders (NAHB) filed a separate joint amicus brief the same day.
Both briefs support FNF’s appeal, now before the U.S. Court of Appeals for the Eleventh Circuit, and both argue FinCEN exceeded its authority and understated the rule’s cost.
“The rule imposes significant operational, financial and compliance burdens on title & settlement companies—particularly small businesses—while offering benefits that are largely speculative,” ALTA said in an announcement. ALTA added in its amicus brief that FinCEN did so “without the statutory authority to require the wholesale reporting of routine transactions.”
Where does the FinCEN RRE Rule stand?
The RRE rule required title & escrow companies to report most non-financed residential transfers involving a trust or entity, at an estimated first-year cost to the industry that FinCEN put at $559.4 million.
It took effect March 1, then encountered conflicting court decisions. A Texas judge vacated it nationwide on March 19, after a Florida judge had upheld it. FinCEN appealed the Texas decision to the Fifth Circuit. FNF appealed the Florida ruling to the Eleventh Circuit, where the two new amicus briefs now sit. A third case in Puerto Rico is on hold. Two circuits weighing opposite outcomes could send the rule to the Supreme Court. Given the Texas court’s decision, FinCEN is not currently enforcing the rule.
What does the ALTA brief argue?
ALTA’s brief asserts that FinCEN severely underestimated the rule’s negative impact on title & escrow companies, a point supported by results of an ALTA survey of more than 1,300 industry professionals. Key points in the brief include:
- Collecting beneficial ownership information as the RRE rule would require is a process largely outside the traditional role of title & escrow companies. This poses a heavy operational burden.
- 89% of ALTA’s members are title & escrow businesses generating $1 million or less in revenue annually. It’s unrealistic to expect these firms to complete RRE reporting obligations in a few hours, given staffing restrictions and the breadth and complexity of reporting requirements.
- Determining if a transaction is reportable is far from simple. It can require title & escrow professionals to interpret complex regulatory definitions not readily answered by an analysis of transaction documents alone.
- Obtaining information from buyers and sellers is a major practical challenge. Title & escrow companies have no legal mechanism to compel parties to provide beneficial ownership information. And yet, industry firms face penalties for failing to report the information.
- Training of title & escrow professionals, along with realtors and transaction partners, would be far more extensive than what FinCEN estimated.
- Technology investments in new processes, software modification, and secure methods of collection would be substantial. Some firms have spent hundreds of hours modifying title production systems, ALTA says. Qualia built an end-to-end FinCEN reporting solution directly into Qualia Core at zero cost to customers to help streamline compliance. It remains ready to go if the RRE rule ultimately takes effect.
How does ALTA’s brief compare to the Chamber, NFIB, and NAHB brief?
Where ALTA’s brief shows the rule breaking down in practice, the Chamber brief argues it breaks down under law. It asserts that FinCEN lacks the authority to treat a whole category of routine transactions as suspicious, and says FinCEN never did the cost-benefit work the law demands. The brief makes these arguments under the Bank Secrecy Act, the law FinCEN relies on for its reporting authority. In particular, it argues:
- The Bank Secrecy Act only lets FinCEN compel reporting of transactions that are individually “suspicious.” FinCEN never showed that non-financed transactions as a category meet that bar. The brief also says the Florida judge got this wrong by relying on factors that have nothing to do with actual suspicion of wrongdoing.
- Even if FinCEN had the authority, the Bank Secrecy Act requires a meaningful cost-benefit analysis before imposing a rule like this. FinCEN made no attempt to quantify the rule’s benefits, instead saying they could simply be “inferred.” The brief calls that a basic failure of the Administrative Procedure Act’s reasoned decision-making standard.
What this means for title & escrow companies
Due to the Texas court’s vacatur, the RRE rule isn’t in effect anywhere right now. Title & escrow companies are not currently required to file RRE reports. FinCEN has also said it will not require retroactive reporting for RRE-eligible transactions that occurred while the rule was being contested in court, even if it can ultimately implement it. For now, title & escrow firms can keep an eye on the courts to see how things play out. Qualia will continue to report on key developments.
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