Title insurers may face more paperwork and larger compliance costs next year as a federal court is leaning toward allowing a new reporting rule to go into effect. 

U.S. Magistrate Judge Samuel J. Horovitz recommended this week to the case's presiding judge to grant the government's motion for summary judgment, in a challenge to an upcoming Treasury Department rule. The Financial Crimes Enforcement Network plans to implement the Residential Real Estate Rule next March, which will impose enhanced reporting requirements.

Fidelity National Financial filed an Administrative Procedures Act complaint in May against the Treasury and Fincen, arguing the rule is "arbitrary and capricious." The American Land Title Association also stepped into the fray, decrying Fincen's own report suggesting the real estate sector would spend up to $690 million in the first year to comply with the rule.

In a 50-page report and recommendation published Tuesday in a Florida court, Horovitz explained why he rejected the real estate players' arguments, including the government's alleged violations of the First and Fourth Amendments. 

"Because the rule is within the agency's authority, meets the statutory requirements, and is not too indefinite—and not a 'grab-everything collection of suspicionless data' as plaintiffs impute … it is lawful," the judge wrote. 

U.S. District Judge Wendy Berger, who was appointed by President Trump in 2019, still needs to OK the report.

Federal attorneys referred requests to comment to the Department of Justice, and neither of the parties nor their attorneys responded to requests for comment Wednesday. The rule, drawn up under the Biden Administration, was originally set to go into effect Dec. 1, before the Trump Administration delayed enforcement. 

What's at stake

The Real Estate Reporting Rule would update already-existing "Residential Real Estate Geographic Targeting Orders", or GTOs, which Fincen has used since 2016. Certain title companies are required to file reports concerning non-financed purchases of residential real estate above a specific threshold in certain geographic areas. 

The rule is meant to give the government insight into transactions Fincen considers to present a higher risk of money laundering. Feds noted that from 2017 to 2024, around 42% of non-financed transfers of real estate reported under GTOs were conducted by parties that were subjects of suspicious activity reports filed by other institutions. 

The watchdog began mulling the rule in 2021, which would greatly expand the GTO scope to all-cash home purchases made by companies and organizations or trusts, with no dollar threshold. The rule exempts certain transactions related to death or other common transfers. 

Whereas just over 20,000 GTO reports were made to Fincen in 2023, the watchdog said it estimates between 800,000 to 850,000 new reporting filings to be filed annually. ALTA argued its members would file more than half of those anticipated reports. Many small title businesses are ill-equipped to absorb the anticipated workload and costs which will cut into thin profit margins, the trade group argued. 

The magistrate judge in his recent report pointed to a study, cited by Fincen, in which 61% of federal money laundering cases concerned residential real estate in areas not covered by existing GTOs.

FNF has 14 days to file objections to Horovitz's report. Beyond money laundering concerns, title insurers also deal with sizable fraud and forgery attempts.

Title insurers' fortunes sway with at-large market activity, and the industry's biggest players recently reported a stronger third quarter, with FNF posting $358 million in net earnings.