Designation Agreements: How to Reassign Who Files the Report

The 7-tier cascade assigns filing responsibility based on who performed which function in the closing. The settlement agent is usually Tier 1, which means the title company files. But sometimes that does not make practical sense. Maybe a different firm in the transaction already has a relationship with the buyer and is better positioned to collect beneficial ownership data. Maybe the parties agreed up front that another professional would handle compliance.

Designation agreements let cascade participants reassign the filing obligation to another participant in the cascade. They are a practical tool for multi-party closings where the default cascade assignment would be inefficient. But they have specific requirements that you cannot skip.

The agreement must be in writing. Verbal agreements do not count. It must be specific to a single transaction. You cannot sign a blanket designation that covers "all future deals" between two firms. Every reportable transfer needs its own agreement.

You can only designate someone who is also in the cascade for that transaction. If a person did not perform any of the seven cascade functions (settlement, statement preparation, deed filing, title underwriting, fund disbursement, title evaluation, deed preparation), you cannot designate them. You cannot hand the obligation to a third-party compliance vendor who had no role in the closing.

You can outsource the mechanical work, like form preparation, to any vendor you want. But the designated reporting person remains legally responsible for the filing. Outsourcing the paperwork does not outsource the liability.

Every designation agreement needs: the date of the agreement, identification of the property, identification of the transferor (seller) and transferee (buyer), the name and address of the person being designated as the reporting person, and the names and addresses of all parties to the agreement.

Good agreements also include cooperation terms: the designating party commits to providing transaction data, buyer information, and any other details the designated filer needs to complete the report. Without cooperation language, the designated party may accept responsibility but lack the information to actually file correctly.

Execute the agreement before or at closing, not after. If you wait until post-closing, the designated party may not have enough time to collect beneficial ownership data and prepare the filing before the deadline. Late designation is one of the most common causes of missed filings in multi-party closings.

Every party to the agreement must retain a copy for five years from the date of the reportable transfer. This is a separate retention requirement. Even if you successfully designate someone else to file, you still have to keep your copy of the agreement for five years.

Using blanket agreements instead of per-transaction agreements. If challenged, a blanket agreement may not hold up, leaving the original cascade participant on the hook for every transaction it was supposed to cover.

Designating someone outside the cascade. A compliance consultant, an attorney who did not perform any cascade function, or a third-party filing service cannot be designated under the rule. They can help with preparation, but the legal responsibility must stay with a cascade participant.

Designation without data handoff. Signing the agreement but failing to provide the designated filer with the buyer's contact information, beneficial ownership data, and transaction details. The agreement transfers responsibility, but the designated filer cannot file what they do not have.