31 C.F.R. 1031.320(b)(2)(v)
Exemption: U.S. Court-Supervised Transfers
Property transfers that are directly supervised by a U.S. court, such as receivership sales or court-ordered liquidations, may be exempt.
Rule text summary
The rule exempts transfers of residential real property where the transfer is supervised by a United States court. This applies when the court has direct oversight of the transfer process and the disposition of the property.
Paraphrased for clarity. See the Federal Register Final Rule for authoritative text.
Analysis
The rationale is that when a U.S. court is supervising a property transfer, there is already judicial oversight of the transaction. The court is monitoring the parties, approving the terms, and ensuring the transfer complies with applicable law. Adding a FinCEN reporting requirement on top of active judicial supervision is redundant.
Examples include sales ordered by a court-appointed receiver, property transferred as part of a court-supervised liquidation, or transfers directed by a court in civil forfeiture proceedings. The common element is that a judge is actively overseeing the disposition, not just that litigation tangentially involves the property.
The exemption requires actual supervision, not just peripheral court involvement. A property sold during a contract dispute where a court eventually resolves the dispute is not the same as a property sold under the direct supervision of a court-appointed receiver.
Practical guidance
- Identify the specific court order, receivership appointment, or judicial directive that governs the transfer. Store copies in the file.
- Confirm that the court is supervising the transfer itself, not just adjudicating a dispute that happens to involve the property.
- If only part of the transaction is court-supervised (for example, the court approved the sale but not the buyer selection), analyze whether the supervision is sufficient to invoke the exemption.
- When court involvement is partial or unclear, escalate to legal counsel rather than assuming the exemption applies.
Common mistakes
- Treating any litigation involvement as court supervision. A lawsuit over the property does not mean the court is supervising the transfer. There must be actual judicial oversight of the disposition.
- Applying the exemption without a specific court order in the file. 'This came from a receivership' is not documentation. The receivership order and sale approval order are.
- Assuming federal court proceedings and state court proceedings are treated identically without verifying that the supervising court qualifies under the rule.