Designation Agreements: How to Contract Out of the Cascade of “Reporting Person” Responsibility Under FinCEN’s Residential Real Estate Reporting Rule

Matthew C. Christoph, mchristoph@tuckerlaw.com, (412) 594-5503

On August 29, 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued the Anti-Money Laundering Regulations for Residential Real Estate Transfers (the “Reporting Rule”), codified at 31 C.F.R. § 1031.320, to combat financial fraud and money laundering in the U.S. residential real estate market. Initially issued to become effective December 1, 2025, the Secretary of the Treasury later issued its Exemptive Relief Order to Delay the Effective Date of the Residential Real Estate Rule, granting temporary exemption from the Reporting Rule’s requirements from September 30, 2025, until March 1, 2026.

After March 1, 2026, the Reporting Rule is in effect, requiring that a “reporting person” electronically file a “Real Estate Report” with FinCEN for any “reportable transfer” of “residential real property” (as those terms are defined or otherwise established under the Reporting Rule). Real estate practitioners should educate themselves by reviewing the Reporting Rule in full and the guidance materials and resources made available at https://www.fincen.gov/rre, including FinCEN’s responses, updated or supplemented periodically, to the Frequently Asked Questions (FAQs) on its webpage.

This new reporting requirement creates new and expanded responsibilities and significant risks for unwary real estate attorneys, settlement agents, title insurers, escrow agents, and other real estate professionals. Potential civil or criminal penalties for violating the Reporting Rule, which are not stated within the rule itself but are incorporated from the Bank Secrecy Act, could be substantial. Currently, civil penalties of $1,430 are possible for each negligent violation, with an additional penalty of $111,308 for a demonstrable pattern of negligent violations. Willful civil violations currently carry potential penalties ranging from $71,545, to a current maximum of $286,184. Civil penalties will also increase over time, adjusted upward for inflation per the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. § 2461 note, as amended. Conviction for willful criminal violations can result in penalties of up to five years imprisonment, a fine up to $250,000, or both.

Determining the Reporting Person under the Reporting Rule

First, assuming the obligation to file a Real Estate Report is triggered under the Reporting Rule, an obvious question arises: “Who is the reporting person?”

Subparagraph (c)(1) of the Reporting Rule prescribes a “reporting cascade” to identify the service provider responsible for filing a report. Accordingly, the reporting person for a reportable transfer, whether an individual or legal entity, will be one of the following persons:

• the closing or settlement agent listed on the closing or settlement statement;
• if no such person is listed, the person preparing the closing or settlement statement;
• if none of the above exist, the person filing the deed or instrument of transfer with the recorder’s office;
• if none of the above, the transferee’s title insurance underwriter;
• if none of the above, the person dispersing the greatest amount of funds related to the transfer from an escrow or trust account;
• if none of the above, the person evaluating the status of title; or
• if none of the above, the person preparing the deed or instrument of transfer.

For an individual that would be a reporting person by function of their employment, agency, or partner status, subparagraph (c)(2) of the Reporting Rule provides that the reporting person will instead be that individual’s employer, principal, or partnership. If no person is performing any of the services described above, the transfer is exempt from reporting under subparagraph (b)(2)(viii) for lack of a reporting person. Given the broad sweep of these provisions as applied to modern real estate transactions and industry practice, however, it is highly unlikely that an otherwise reportable transfer could ever be exempt for lack of any person fitting at least one of the above specified descriptions.

The Alternative: Designation of a Reporting Person by Contract

Under subparagraph (c)(4) of the Reporting Rule, a “designation agreement” is expressly permitted between or among persons who are or could otherwise be the reporting person under the cascade for the same reportable transfer. So, the initially responsible reporting person (as determined under the cascade) and one or more other persons within the scope of the cascade for the same reportable transfer may enter into an agreement whereby one of those individuals or entities accepts designation as the reporting person.

A party to the transfer, including the beneficial owner of a transferee or transferor, could be the reporting person if that party is providing one or more of the closing or settlement services within the reporting cascade for the transfer. If within the scope of the cascade, a party to the transfer could also be party to a designation agreement, either to designate another party as the reporting person, acknowledge or consent to another party’s designation, or agree to be designated as the reporting person.

Notably, it follows that since they are not within the scope of the cascade, a third-party service provider, even one specifically offering services related to regulatory compliance, FinCEN, the Reporting Rule, or Real Estate Reports, cannot be designated the reporting person. Although permitted to assist a reporting person in preparing a Residential Real Estate Report, the critical distinction between engagement of a third-party for reporting-related services and valid designation of a reporting person by agreement is that, under the Reporting Rule, the engagement of a third party will not transfer the ultimate responsibility from the reporting person. In FinCEN’s Section-by-Section Analysis of the Reporting Rule (see Anti-Money Laundering Regulations for Residential Real Estate Transfers, 89 Fed. Reg. 70,258, 70,272 (Aug. 29, 2024)), it is expressly stated that although outsourcing “preparation of the form to a third-party vendor” is permitted, “ultimate responsibility for the completion and filing of the report”—and liability for any omitted, insufficient, or false reporting—remains squarely with the reporting person.

Requirements and Recommendations for Implementing Designation Agreements

A designation agreement must be in writing. To draft a sufficient designation agreement, the agreement must contain all information required under subparagraph (c)(4)(ii) and paragraph (g) of the Reporting Rule. In other words, it must specify the date of the agreement; contain the names and addresses of the transferor, the transferee entity or trust, the initial reporting person making the designation, the designee, and any other parties to the designation agreement; and as to the subject property, contain the street address, legal description, and closing date of the transfer. While submission to FinCEN along with the Real Estate Report is not required, all parties to a designation agreement must retain a copy of the agreement for no less than five years. See 89 Fed. Reg. at 70,276.

A separate, specific designation agreement must be executed for each reportable transfer since the Reporting Rule does not allow for “blanket” designation agreements between or among real estate service providers to cover multiple reportable transfers. During the notice and comment period for the proposed form of the rule, public comments advocated that blanket designation agreements should be permitted, but FinCEN responded that blanket agreements would undermine enforcement and clear determination of responsibility under the Reporting Rule, for example, where multiple blanket agreements could conflict or confuse the analysis of which service provider is ultimately responsible as the reporting person. See 89 Fed. Reg. at 70,272.

As a practitioner preparing or entering into a reporting person designation agreement, confirm all requirements under the Reporting Rule are satisfied, use express statements of designation and acceptance, and clearly state the agreement’s applicability to a single, expressly identified reportable transfer. Ensure valid, duly authorized execution by all parties, but especially by the designating party and the designee. After execution, ensure secure retention of each fully executed designation agreement, and consider whether confirmation of proper filing and proof of acceptance by FinCEN should be a post-filing deliverable required of the designee.

A reporting person negotiating a designation by agreement (or their counsel) should seek protections in the form of certifications, representations and warranties, indemnification, and restrictions against assignment or delegation by the designee. On the other hand, it would be in a designee’s interest to omit or limit any such provisions and include an express limitation of liability to any counterparties. Notably, one template designation agreement, available online from a Real Estate Report service provider and reviewed at the time of preparing this article, tracked the requirements of the Reporting Rule but lacked any indemnification, limitation of liability, or substantive warranties of any kind.

Ultimately, as the Reporting Rule presents new layers of regulation for residential real estate transactions, only time will tell what substantive terms, over and above the contents required by applicable law, become industry standard or “market” for this highly specific type of agreement, and what additional terms may be more or less negotiable depending on the parties and circumstances. In the meantime, practitioners must review the Reporting Rule closely to best protect their clients and themselves while providing professional real estate services.

Reprinted with permission from the February 26, 2026, issue of The Legal Intelligencer. © 2026 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.