Tierra Mallorca, Unsplash
Recently, a federal judge in the Eastern District of Texas vacated FinCEN’s residential real rule (the “Rule”) finding that the agency exceeded its statutory authority under the Bank Secrecy Act (the “BSA”). Flowers Title Companies, LLC v. Bessent, Case No. 6:25-cv-127 (E.D. Tex. Mar. 19, 2026). Since finalization in 2024, the Rule has been subject to litigation in various jurisdictions. The Rule requires the collection and reporting of information to FinCEN in connection with transfers of residential real estate to entities and certain trusts that do not involve financing by a lender subject to anti-money laundering requirements under the BSA.
FinCEN’s website was subsequently updated with an alert indicating that “[i]n 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.”
While the decision affords reporting persons a reprieve from filing requirements, this is not likely the end for the real estate sector. FinCEN and the Financial Action Task Force (“FATF”) have long recognized anti-money laundering risks posed by the real estate market. We have previously blogged about FATF’s guidance related to the real estate sector here.
Flowers Title Companies, LLC v. Bessent
The Plaintiffs challenged the Rule under the Administrative Procedures Act (“APA”), claiming that the Rule exceeded FinCEN’s statutory authority under the BSA. Plaintiffs alternatively claimed that if the BSA does authorize the Rule, then the BSA violates the “nondelegation doctrine” of the Commerce Clause, exceeds Congress’s enumerated powers, and violates the Fourth Amendment.
FinCEN relied on following two provisions of the BSA as justification of their authority to promulgate the Rule:
31 U.S.C. § 5318(g)(1)
Section 5318(g)(1) of the BSA states that FinCEN “may require financial institution, and any director, officer, employee, or agent of any financial institution, to report any suspicious transaction relevant to a possible violation of law or regulation.” FinCEN argues that non-financed transfers of residential real estate are a type of suspicious transaction that requires reporting.
The Court held that FinCEN failed to show how non-financed residential real estate transactions were categorically suspicious pursuant to 31 U.S.C. § 5319(g)(1). The Court acknowledged that there may be bad actors conducting suspicious non-financed real estate transactions, but that does not make them categorically suspicious, and FinCEN failed to provide sufficient evidence showing otherwise.
31 U.S.C. § 5318(a)(2)
Section 5318(a)(2) of the BSA states that FinCEN may “require a class of domestic financial institutions or nonfinancial trades or businesses to maintain appropriate procedures, including the collection and reporting of certain information[.]” The Court held that 31 USC § 5318(a)(2) does not provide FinCEN with the appropriate authority to adopt the Rule, but instead gives FinCEN the authority to require financial institutions to maintain procedures to comply with the BSA.
The decision in Flowers differs from a recent Florida case where the Margistrate Judge’s Report and Recommendation concluded that FinCEN’s motion for summary judgment should be granted and that the Rule was statutorily authorized by the BSA. Fid. Nat’l Fin., Inc. v. Bessent, case No. 3:25-cv-554 (M.D. Fla. Dec. 9, 2025). FinCEN relied on similar statutory provisions as justification of the Rule.
At the time of the writing of this blog post, FinCEN had not filed a notice of appeal.
[View source.]
