Welcome to your Non-Financed Transfers Quiz!
Read the prompt below, then take the 10-question quiz to test your knowledge of Non-Financed Transfers under FinCEN’s Residential Real Estate Reporting Rule.
Prompt:
To be reportable, a transaction involving residential real property must involve “a non-financed transfer” to a transferee entity or transferee trust.
The Reporting Rule defines “non-financed transfer” as:
- “a transfer that does not involve an extension of credit to all transferees that is (i) secured by the transferred residential real property, and (ii) extended by a financial institution that has both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions under this chapter.” 31 CFR § 1031.320(n)(5)."
Each of the two prongs is important. A transaction financed by an unsecured loan might be a “non-financed transfer” since the first prong describes an extension of credit that is secured by the property being purchased.
Likewise, if the transaction is financed by a secured loan extended by a lender that does not have “both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions” under the Bank Secrecy Act, then such transaction is non-financed for purposes of the Reporting Rule.
FinCEN has developed AML (anti-money laundering) and SAR (suspicious activity reporting) reporting requirements for a wide variety of business types, including banks, loan or finance companies, casinos, card clubs, securities brokers/dealers, mutual funds, and insurance companies.
FinCEN’s rules for banks are outlined in 31 CFR § 1020. Those rules require banks to maintain a system of internal controls to assure ongoing compliance, independent testing for compliance, the designation of an individual responsible for coordinating and monitory
compliance, training for appropriate personnel and risk-based procedures for conducting ongoing customer due diligence. 31 CFR § 1020.210(a). FinCEN’s definition of “bank” includes both state and federal chartered banks, savings and loan associations, credit unions, and foreign banks operating inside the United States. 31 CFR § 1010.100
FinCEN’s rules for “loan or finance companies.” 31 C.F.R. § 1029.210. Loan or finance companies, like banks, must also adopt compliance policies, designate a compliance officer and providing for ongoing training and independent testing of their compliance.
On its website, FinCEN claims that the term “financial institution” can “reasonably be construed to extend to any business entity that makes loans to or finances purchases on behalf of consumers and businesses.” FinCEN states that “non-bank residential mortgage lenders and originators, generally known as “mortgage companies” and “mortgage brokers” in the residential
mortgage business sector, are a significant subset of the “loan or finance company” category. See Important Information for Mortgage Companies and Brokers, available at https://www.fincen.gov/resources/financial-institutions/mortgage-co-broker (last visited April 6,
2025).
The importance for practitioners is that a lender’s status as a “loan or finance company” that is subject to the AML/SAR reporting obligations imposed by FinCEN will determine whether a residential real estate transaction is “non-financed” or “financed.”
- If the lender is subject to AML/SAR reporting obligations and it makes a loan secured by the transferred property, then the transaction is not non-financed. Such a transaction will not be reportable.
However, if the transaction involves a lender not subject to AML/SAR reporting obligations making a loan to the purchaser, then the transaction is deemed “non-financed,” thereby rendering the transaction reportable by the reporting person.
If a prospective reporting person does not know the AML/SAR reporting status of the lender, the reporting person should take affirmative steps, such as requiring a certificate from the lender, to eliminate any doubt as to the reportable status of the transaction.
Example 1: Unsecured Loan / Non-Financed Transaction
Mrs. Jones sells a single-family residential property to ACME, LLC. ACME, LLC pays the purchase price to Mr. Jones through an unsecured loan it receives from a national bank.
Because the loan is unsecured, the transaction is “non-financed” and, therefore, reportable under the Reporting Rule.
Example 2: Seller Note / Non-Financed Transaction
Mrs. Jones sells a single-family residential property to ACME, LLC. ACME, LLC pays 50% of the purchase price in cash and gives Mrs. Jones a promissory note for the remaining purchase price, with a mortgage on the property to secure the promissory note.
Although the transaction is financed with a secured loan, ACME, LLC is not a lender subject to AML/SAR obligations, so the transaction is deemed “non-financed” and is therefore reportable under the Reporting Rule.
Example 3: Secured Loan by Mortgage Lender / Not Reportable
Mrs. Jones sells a single-family residential property to ACME, LLC. ACME, LLC pays 20% of the purchase price in cash, with the balance coming from a loan made by a mortgage broker.
If the mortgage broker is a “loan or finance company” that is subject to AML/SAR reporting obligations, then the transaction is financed (and not non-financed) and, therefore, not reportable.
But, if the mortgage broker is not subject to AML/SAR reporting obligations, then the transaction is non-financed and should be reported under the Reporting Rule.
***Answer the following questions to test your knowledge on Non-Financed Transfers.
