Earlier this month, the FTC released updated text of the Fair Credit Reporting Act (FCRA), which compiles the complete text of the FCRA, including all amendments, into one document to assist users and furnishers of consumer reports with compliance. The document was revised to include the Homebuyers Privacy Protection Act’s (Public Law 119-36) requirements in Section 604 on pages 17 and 18, which went into effect earlier this month. The Act was implemented to prevent consumer reporting agencies from selling consumer reports to third parties for mortgage trigger leads, as such practice results in excessive and unwanted loan solicitations to consumers.

The Act includes the following limitations on requests for prescreening reports:

“If a person requests a consumer report from a consumer reporting agency in connection with a credit transaction involving a residential mortgage loan, that agency may not, based in whole or in part on that request, furnish a consumer report to another person under this subsection unless—

• the transaction consists of a firm offer of credit or insurance; and
• that other person—
  • has submitted documentation to that agency certifying that such other person has, pursuant to paragraph (1)(A), the authorization of the consumer to whom the consumer report relates; or
  • has originated a current residential mortgage loan of the consumer to whom the consumer report relates;
•  is the servicer of a current residential mortgage loan of the consumer to whom the consumer report relates; or
  • is an insured depository institution or credit union; and
  • holds a current account for the consumer to whom the consumer report relates.”

This Act is a reminder for financial institutions to review their FCRA policies and procedures to ensure that such documents require that they have a permissible purpose for every consumer report that they obtain and that they do not furnish reports to another person unless such person has a permissible purpose to obtain the report.  In particular for those organizations engaged in mortgage lending, now is a good time to review policies and practices as it relates to the use of consumer reports in the organization’s mortgage operations.

Please reach out to Winthrop & Weinstine’s regulatory team if you or your organization has any questions about compliance with the FCRA.

Legislature Reaches First and Second Bill Deadline

The first and second committee deadline today (Friday) marks a key milestone in the 2026 legislative session. By this date, most policy bills must clear committees or risk being set aside for the year. These deadlines help narrow the field of proposals, allowing lawmakers to focus on the bills with real momentum and begin shaping broader omnibus legislation ahead of the upcoming third deadline for major appropriation and finance bills on April 17. The Legislature is on its Easter/Passover recess beginning at 5:00 pm on Friday, March 27, and returning on Tuesday, April 7.

What’s Next

Work on a supplemental budget will begin in earnest after the Easter/Passover break. With a projected $3.7 billion surplus for FY 26–27 and a much smaller surplus of $377 million in FY 28–29, DFLers and Republicans are expected to debate competing interests, including tax relief, targeted investments, capital expenditures and long-term fiscal stability. The narrower FY 28-29 balance is likely to shape a more cautious approach to new spending commitments. Leadership in both chambers, along with Governor Tim Walz, will play a key role in negotiating a final agreement before adjournment.

Senate Approves Rule Change Allowing Children on Floor

After a lengthy—and, at times, emotional—debate on Wednesday, the Minnesota Senate voted 41–25 to change its rules to allow senators to bring their children onto the Senate floor during sessions. The proposal gained momentum after Senator Clare Oumou Verbeten was asked to leave the chamber with her infant, prompting a bipartisan push led by Senators Julia Coleman and Erin Maye Quade to make the workplace more accommodating to parents. Supporters argued the change reflects the realities of long legislative hours and limited childcare, sharing personal stories about balancing public service and parenting, while framing the move as a step toward making elected office more accessible. Opponents raised concerns about decorum, distractions, and fairness, suggesting alternatives such as nearby childcare or remote participation, and unsuccessfully proposed limits on children’s ages and a sunset provision. The final rule, which allows children of any age with leadership approval, took effect immediately, with supporters calling it overdue modernization and critics warning of potential impacts on chamber operations.

Repeal of César Chávez Day Receives Rare Unanimous Vote in House and Senate

Minnesota lawmakers are moving quickly to repeal the state’s César Chávez Day designation, reflecting one of the fastest-moving and most highest-profile issues of the 2026 session. Following recent allegations against Chávez, the House and Senate this week unanimously passed repeal legislation with leaders aiming to finalize the bill before the March 31 holiday. The bill now goes to Governor Tim Walz who is expected to sign the bill.

“Ghost Gun” Ban Stalls in House

HF 3407, a bill to ban “ghost guns,” was heard in the House Public Safety Finance and Policy Committee this week and failed on a 10-10 tie vote with DFLers voting in favor of the bill and Republicans voting against. The bill sought to prohibit the manufacture, possession, and transfer of firearms lacking serial numbers and to regulate unfinished frames and receivers. Proponents argue HF 3407 would enhance public safety by closing regulatory gaps around unserialized firearms, making weapons more traceable and limiting access to guns that can currently be obtained without background checks. Opponents contend the bill could infringe on Second Amendment rights and impose burdens on lawful gun owners and hobbyists, while raising concerns about enforceability and the regulation of digital design files. The Senate’s version of the “ghost guns” bill, SF 3661, passed the Judiciary Committee and is awaiting action on the Senate Floor.

The legislature will be on break next week, so stay tuned for the next Legi Top 5 on April 10, 2026.

This is an update to the client alert previously published on March 3, 2026

On March 19, 2026, a federal district court struck down FinCEN’s new “Residential Real Estate Rule” as beyond the scope of its authority under federal law.[1] The Rule, which FinCEN began enforcing March 1, requires certain professionals involved in real estate conveyances to submit detailed reports regarding non-financed transfers of residential real estate to legal entities or trusts. In Flowers Title Companies, LLC v. Bessent et al, the U.S. District Court for the Eastern District of Texas, Tyler Division, found that the final Rule violates FinCEN’s authority to require and maintain procedures for reporting suspicious transactions under the Bank Secrecy Act and Administrative Procedure Act. The Court called the government’s arguments “vague, conclusory and unpersuasive,” determining, among other things, that the Rule “declare[s] an entire category of residential real estate transactions to be ‘suspicious’ with no proof or sufficient explanation why.”[2] Based on its analysis, the Court universally vacated and set aside the Rule.[3]

What does this mean for the real estate industry and otherwise reportable transfers under the Rule?

In light of the Court’s decision, FinCEN is not currently enforcing the Rule or imposing liability on individuals who fail to file the required reports while the vacation order remains in force.[4] However, industry professionals can likely anticipate the government to appeal, which may result in a stay of the vacation order and reinstatement of the Rule. As such, appellate activity and FinCEN guidance over the next several weeks will continue to adapt as courts determine the validity of the Rule.

Potential “reporting persons” under the Rule may benefit from continuing to analyze and conduct potentially reportable transfers in line with the requirements of the Rule (other than submitting reports) in the event FinCEN successfully appeals the Court’s decision.

Winthrop & Weinstine’s Real Estate attorneys continue to track this topic as it evolves. For more information, feel free to reach out to our Real Estate team, or your regular Winthrop contact.

[1] See Flowers Title Companies, LLC v. Bessent et al, Case No. 6:2025cv00127 – Doc. 34 (E.D. Tex. 2026).

[2] Id. at 10–11 (original quotations).

[3] Id. at 17-18.

[4] Financial Crimes Enforcement Network, Residential Real Estate Rule, https://www.fincen.gov/rre (last visited Mar. 24, 2026).

Governor Releases Supplemental Budget

Governor Tim Walz’s supplemental budget was released this week. While relatively modest in net fiscal impact, it resembles a full biennial budget in scope, introducing significant policy ideas such as new taxes, expanded credits, fraud prevention measures, and investments in IT and human services. The supplemental budget would have a modest $63 million net impact in FY 2026-2027 and a projected $435.4 million budget reduction in FY 2028-2029.  The plan includes $488.8 million in new spending this biennium, largely offset by $425.5 million in cuts and new revenue, while future years see $801.7 million in spending balanced by $1.237 billion in reductions.

Governor Proposes Sales Tax Expansion,Tech Platform Tax, and Federal Conformity

The Governor proposes several tax increases expected to generate significant revenue, led by $321.6 million from expanding the sales tax base to professional services and certain bank charges. This expansion is paired with a slight overall rate reduction from 6.5% to 6.425%. Another $267.2 million in new revenue comes from federal tax conformity changes, primarily in the out-biennium. Additional revenue includes $37.4 million from a new gross receipts tax on firearms and ammunition. Separately, a proposed social media tax on large platforms would raise an estimated $240.8 million over four years for a workforce development fund tied to AI-related job displacement, rather than the general fund. The plan also includes extending the pass-through entity tax and creating a new pass-through audit unit.

Stay-or-Pay Mandate Stalls in House but Moves in Senate

HF 2567/SF 2533 would prohibit “stay-or-pay” provisions in employment contracts. “Stay-or-pay” clauses require workers to repay training or other costs if they leave a job early. HF 2567/SF 2533 makes these clauses unenforceable and allows employees to sue for violations, with limited exceptions for tuition tied to transferable credentials under strict conditions. Supporters argue these agreements can trap workers in jobs through costly exit penalties, calling them coercive and a barrier to job mobility. Opponents, including business groups, counter that such provisions are legitimate tools to recoup training investments and support workforce development, warning that banning them could discourage employers from investing in employee skills. The bill failed on a tie vote in the House Workforce, Labor, and Economic Development Finance and Policy Committee.  In the Senate, the bill passed the Labor Committee and is waiting to be heard in the Judiciary and Public Safety Committee.

Gun and School Safety Bills Advance in Senate

The Senate Judiciary and Public Safety Committee advanced a package of gun and school safety proposals, signaling continued momentum on the issue in that chamber. However, similar measures—including restrictions on assault-style weapons—remain stalled in the House, where tied, party-line votes have blocked progress. The divide underscores the issue as one of the most politically contentious at the Capitol this session. Lawmakers on both sides point to public safety as a priority, but differ sharply on approach, with DFL members emphasizing prevention and access restrictions, while Republicans raise concerns about constitutional rights and enforcement impacts. With the House evenly divided, any movement on these proposals will likely require bipartisan compromise, making the path forward uncertain as key legislative deadlines approach.

House Commerce Committee Advances Bill to Cap Ticket Resale Prices

The House Commerce Finance and Policy Committee advanced HF 4250, a bill aimed at limiting ticket resale prices and increasing pricing transparency, sending it next to the House Judiciary Finance and Civil Law Committee. HF 4250 seeks to curb ticket price gouging by limiting resale prices to 115% of face value and requiring clear disclosure of original prices and markups. The proposal comes amid growing frustration as concertgoers face steep resale markups that can price out fans and divert money away from artists, venues, and local businesses. Supporters, including representatives from First Avenue, argue the bill would help rein in a “distorted” resale market driven by bots and brokers, while opponents warn that price caps could backfire by pushing sales to unregulated marketplaces, creating enforcement challenges, and potentially reducing ticket availability.

There has been a recent surge of lawsuits and regulatory actions against major banks and brokerages alleging that cash sweep programs pay unreasonably low rates while the banks/brokerages generate significant revenue. As is the typical trend, the largest banks and financial institutions have been targeted first—for example, Wells Fargo, Merrill Lynch, J.P. Morgan Chase, and Ameriprise—but opportunistic lawsuits against mid-size banks and brokerages will surely follow.

One recent decision that is noteworthy for financial institutions reviewing their cash sweep programs is the United States District Court for the District of Minnesota decision in Futo et al v. U.S. Bancorp et al. In Futo, the court held that the terms of, and disclosures contained in, the customers’ contracts reigned supreme. The Futo decision further reinforced the often-heard advice to banks and financial institutions to disclose, disclose, disclose and then disclose again. Making the required disclosures in the controlling contractual documents resulted in dismissal of all claims and the defendants saving millions in potential damages.

In April 2025, Adam Futo and Saul Ellis filed a complaint against U.S. Bancorp alleging that its subsidiary, U.S. Bancorp Investments, Inc. (“USBI”), shorted customers who participated in its cash sweep program. USBI offered its customers a number of brokerage accounts that allowed its customers to trade mutual funds, stocks, and securities. USBI offered those brokerage customers the option to also participate in USBI’s cash sweep program.

Under USBI’s cash sweep program, USBI continuously transfers uninvested cash balances in customers’ brokerage accounts into interest-bearing deposit accounts at U.S. Bank. Under the program, interest compounds daily on customer’s cash, and USBI pays interest to customers’ monthly. Mr. Futo and Mr. Ellis alleged that the average interest customers received was between 0.03% and 2.00%, whereas the average monthly federal funds rate was between 1.19% to 5.33%, and that other cash sweep programs were over 3.5%. Mr. Futo and Mr. Ellis alleged that Defendants’ below-market interest rates (BMIR) improperly benefited themselves while shorting the customers. Mr. Futo and Mr. Ellis’ complaint asserted a purported class action in which they estimated over $140 million in potential damages.

Such damages were avoided, and all claims dismissed, because the contract documents contained, among other things, the following disclosures:

• Notified customers of the option not to participate in the cash sweep program and to invest their account’s cash balances in products offered outside of the program;
• Explained that USBI received fees and benefits from the cash sweep program;
• Notified participants that the cash sweep vehicle “should not be viewed as a long-term investment option” and that money market funds carried “investment risk including the possible loss of the principal amount invested”;
• Stated that the interest rate available through the cash sweep program “may be higher or lower than the interests rates available” through other investment vehicles, and that “USBI has no obligation to ensure you receive a particular rate or the highest rate available.” The contract further stated that USBI “has no obligation to ensure you receive a particular rate [of interest] or the highest rate available.”; and
• Stipulated that “[W[hen [USBI] act[s] in a brokerage capacity, you will exercise your own independent judgment in determining whether to act on our recommendations. We are not your investment advisor or fiduciary unless we have expressly agreed with you in writing to act in such a capacity.”

While the court thoroughly analyzed each of Mr. Futo and Mr. Ellis’ seven claims—breach of fiduciary duty, negligence, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation and omission, violations of the Minnesota Consumer Fraud Act and the Minnesota Deceptive Trade Practices Act, and unjust enrichment—the Court repeatedly went back to the contract documents, held that the parties’ contract controlled, and determined that the claims must be dismissed in light of the terms, conditions, and disclosures contained in the parties’ contract. In short, in order to protect themselves, financial institutions should provide detailed risk disclosures (such as loss of principal, market fluctuations, and the potential superiority of other investment vehicles), clearly disclose the parameters of its fiduciary obligations, disclose obligations (or lack of obligations) regarding the rate of return, and disclose the benefits that the financial institutions receive.

At the end of the day, the safest path forward is to disclose, disclose, and disclose again because Courts look to the terms of the parties’ contract and those terms generally reign supreme.

House GOP Outlines Affordability Agenda for 2026 Session

Minnesota House Republican leaders held a press conference outlining their affordability priorities for the 2026 legislative session, focusing on targeted tax relief and cost-saving measures intended to ease the financial burden on families. Speaker Lisa Demuth and House Floor Leader Harry Niska emphasized plans to lower car tab and boat fees, repeal the retail delivery fee, and conform state taxes to recent federal changes to eliminate taxes on tips and overtime pay packages. They also highlighted making the state’s reinsurance program permanent and returning portions of the budget surplus to taxpayers. House DFLers have their own affordability agenda focused on a broad package aimed at lowering costs for families by addressing health care, child care, housing, energy and other everyday expenses.

Proposed Ban on Local Government NDAs Passes

The House Elections Committee held a hearing this week on H.F. 4077, Representative Emma Greenman’s (DFL-Minneapolis) bill to prohibit local governments from entering into non-disclosure agreements (NDAs) with private entities. Greenman said the bill would prevent “corporate secrecy from corrupting public processes” and would protect the public’s right to know how decisions are made.  She clarified that it would not interfere with legitimate trade secret protections. Testifiers from Hermantown, Pine Island, Farmington, North Mankato, Monticello and other communities described data center proposals negotiated under NDAs that they said limited public input, waived ordinances, restricted elected officials’ access to information, and eroded trust in local government. The bill passed out of committee on a voice vote.

Rental Assistance Plan Clears Senate

The Minnesota Senate debated a high-profile proposal to appropriate $40 million in one-time emergency rental assistance aimed at helping renters at risk of eviction amid rising housing instability. Majority DFLers said the bill is a targeted response to climbing eviction filings and a way to keep families housed by directing funds to counties, tribal governments and community programs. Republicans raised concerns about the source of the funds and questioned eligibility rules, including whether aid recipients should be required to prove legal immigration status. The Senate passed the bill by a 35-32 vote.

Gov. Walz DHS Transformation Plan Appears to be DOA

On Tuesday, Gov. Tim Walz announced a bold plan to transform the delivery of the state’s human services programs. According to a press release from his office, “The proposal would streamline Minnesota’s service delivery model, moving away from the complex, layered administration managed by a patchwork of counties, Managed Care Organizations, and state agencies to a single, centralized entity.” Following the announcement, several Republican legislators quickly denounced the plan, while DFLers largely remained quiet. Notably, Sen. John Hoffman (DFL), Chair of the Human Services Committee, admonished the Walz administration for announcing such significant changes without thorough consultation with legislative committees.

Tick-Tock

We are roughly one month into the 2026 legislative session, and just two weeks remain before the first committee deadline. While there had been speculation that Governor Walz would have announced his supplemental budget proposals this week, the rumor is now that it will happen early next week. As a reminder, here are the key dates for the remainder of session:

• March 19 – No official action due to Eid
• March 27 – First committee deadline
• March 28-Apri 6 – Legislative break
• April 17 – Final committee deadline
• May 18 – End of legislative session

Borrowers periodically ask whether commercial loan documents can be executed electronically. While electronic signatures are legally recognized, their use in commercial lending remains institution-specific. Many lenders continue to require traditional “wet-ink” signatures for certain core documents, particularly promissory notes and mortgages, based on enforcement, operational, and recording considerations.

As a general matter, electronic signatures are enforceable under the federal Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA), adopted in most states. A contract or signature may not be denied legal effect solely because it is in electronic form, provided the parties intend to sign electronically and proper records are retained.

A few documents of particular note:

• For ancillary loan documents, electronic execution can present limited legal risk if reliable authentication and record retention procedures are in place. Greater complexity arises with promissory notes. Because a note is typically a negotiable instrument governed by Article 3 of the UCC, enforcement traditionally depends on possession of the original wet-ink note. If the original cannot be produced, enforcement may require additional steps, such as a lost note affidavit.
• Electronic promissory notes (eNotes) are permitted but must qualify as “transferable records” under E-SIGN. In lieu of physical possession, the lender must demonstrate “control” of a single authoritative copy. This is typically accomplished through a secure electronic vault (eVault), which serves as a digital lockbox—maintaining the authoritative copy, preventing alteration, and tracking transfers of control. Lenders without compliant vaulting infrastructure may determine that wet-ink notes better align with their enforcement and secondary market practices.
• Mortgages and deeds of trust present additional considerations. These instruments must generally be notarized and recorded to perfect a lender’s lien. While many states now authorize remote online notarization (RON) and electronic notarization, the rules vary by jurisdiction. Compliance requires not only a valid electronic signature, but also adherence to state-specific notarial procedures, identity verification standards, and approved technology platforms. In addition, county recording offices differ in their acceptance of electronically executed and electronically notarized documents. Some permit full e-recording; others continue to require paper submissions.

In short, although electronic signatures are legally viable, their use in commercial lending involves more than simple execution mechanics. Lenders should evaluate enforceability, vaulting capabilities, notarization requirements, and local recording practices before modifying established closing procedures.

As borrowers continue to request greater efficiency in closings, lenders are weighing how and when electronic execution makes sense within their existing credit, enforcement, and operational frameworks. There is no one-size-fits-all approach. Careful evaluation of note control, vaulting systems, notarization compliance, and local recording practices is essential before changing documentation procedures. If you have questions about implementing electronic signatures in your commercial lending transactions—or would like to review your current practices—Winthrop & Weinstine’s financial services team would be pleased to assist.

Please see the March 26, 2026 update to this client alert here.

As of March 1, 2026, the Financial Crimes Enforcement Network (FinCEN) is enforcing its new “Residential Real Estate Rule,”[1] which requires certain professionals involved in real estate closings and settlements to submit reports to FinCEN regarding non-financed transfers of residential real estate to legal entities or trusts.[2]  While the Rule became effective December 1, 2025, reporting requirements were postponed to reduce business burden.[3]

The Residential Real Estate Rule expands the Department of Treasury’s efforts to increase transparency and combat and deter money laundering through the illicit use of residential real estate. Transfer of an ownership interest in real property must be reported if the following conditions apply:

1. The property is residential real estate;
2. The property is transferred without financing from a bank or similar financial institution;
3. The property is transferred to a reportable transferee entity or trust; and
4. The transfer is not covered by an exception.

What constitutes residential real estate?

Residential real estate includes real property containing a dwelling or unit designed for occupancy by one to four families—single-family homes, town houses, condominium units, etc.—or on which the transferee intends to build such a dwelling or unit.[4] Shares in a cooperative housing corporation also constitute residential real estate. A timeshare transfer may be subject to reporting if it meets both the definition of residential real estate and an ownership interest.[5]

What constitutes a non-financed transfer?

A non-financed transfer means that the property is transferred without financing (i) secured by the property, and (ii) from a financial institution subject to anti-money laundering program and suspicious activity reporting requirements.[6] There is no consideration or value threshold, so neither the value of the property nor the sale price are relevant to determining applicability of the reporting requirement. Therefore, all cash purchases, seller-financed transactions, and gift transfers are “non-financed” for purposes of the Rule. If there are multiple transferees, the transaction is reportable with respect to any transferee receiving ownership in the property via a non-financed transfer.

What constitutes a reportable transferee?

A reportable transferee is any purchaser of residential real property that is not an individual. So long as at least one of the transferees in a transaction is reportable, the transfer is reportable.

Corporations, limited liability companies, partnerships, estates, associations, and statutory trusts are examples of reportable transferee entities. However, the Rule excludes sixteen types of transferee entities from the reporting requirement—including governmental authorities, banks and credit unions, securities brokers and exchange or clearing agencies, insurance companies, state-licensed public utilities, and subsidiaries of excepted entities.

A reportable transferee trust includes any legal arrangement when an individual places assets under the control of a trustee for the benefit of one or more beneficiaries or for a specified purpose. Testamentary trusts are not a reportable transferee, as they fall within the exception for transfers occurring as a result of death.

What transfers are excepted from the Rule?

Transfers of residential real property do not need to be reported for (i) a grant, transfer or revocation of an easement, (ii) a transfer resulting from the death of an individual (i.e., pursuant to a will, trust, operation of law, or contractual provision), (iii) a transfer incident to divorce, (iv) a transfer made to a bankruptcy estate, (v) a transfer supervised by a court, (vi) a transfer for no consideration made by an individual (with or without their spouse, if applicable) to a trust of which that individual, their spouse or both are the settlors or grantors, (vi) a transfer to a qualified intermediary for purposes of a like-kind exchange pursuant to IRC Section 1031,[7] or (viii) a transfer for which there is no reporting person.

How and when is a transfer reported?

The appropriate reporting individual for the transfer must submit a Real Estate Report, in the form provided by FinCEN, electronically through FinCEN’s free Bank Secrecy Act (BSA) E-Filing System at https://www.bsaefiling.fincen.gov. There is no fee for submitting a Real Estate Report directly through this system.[8] The Real Estate Report must be filed by the last day of the month following the month in which the date of closing occurred or thirty (30) calendar days after the date of closing, whichever is later.

What information must be reported?

The Real Estate Report must include information necessary to identify the reporting person, the residential real property being transferred, the transferor, the transferee entity or trust and its beneficial owners, certain individuals representing the transferee entity or trust (i.e., the signing individuals), any trustee that is an entity (if the transferee is a trust), total consideration paid for the property, and certain information about any payments made by the transferee entity or trust. Reported information will include, but is not limited to, full legal names and trade or “doing business as” names, physical street addresses, citizenship information, unique tax identification numbers (including social security numbers), and the amounts, sources and methods of payment for the transaction.

Who must report a transfer?

A Real Estate Report must be filed by the appropriate reporting individual, which is determined either by way of the “reporting cascade” set forth in the Rule or by way of a written designation agreement between the persons described in the cascading reporting order. If no person is performing the first function in the cascading order, the person performing the next function is the reporting individual, etc.:

1. The person listed as the closing or settlement agent on the closing or settlement statement;
2. The person that prepares the closing or settlement statement;
3. The person that files the deed or other transfer instrument with the recording office;
4. The person that underwrites an owner’s title insurance policy for the transferee;
5. The person that disburses the greatest amount of funds in connection with the transfer;
6. The person that provides an evaluation of the status of the title; or
7. The person that prepares the deed or other transfer instrument.

If none of the above functions are performed, the transfer is not reportable. Transferees, transferors and beneficial owners cannot file a Real Estate Report unless they engage in one of the above functions or are designated by agreement for purposes of the transaction at issue.

Bottom Line

The closing process for nearly all real property transfers will need to adjust to FinCEN’s Residential Real Estate Rule. Failure to comply, whether negligently or willfully, could expose reporting individuals to civil penalties, criminal fines, and/or imprisonment. Winthrop & Weinstine’s Real Estate attorneys are tracking the industry-wide effort to implement these new reporting requirements. For more information, feel free to reach out to our Real Estate team, or your regular Winthrop contact.

[1] Anti-Money Laundering Regulations for Residential Real Estate Transfers, 89 Fed. Reg. 70258 (Aug. 29, 2024), https://www.federalregister.gov/documents/2024/08/29/2024-19198/anti-money-laundering-regulations-for-residential-real-estate-transfers.

[2] Financial Crimes Enforcement Network, Residential Real Estate Rule, https://www.fincen.gov/rre (last visited Feb. 21, 2026).

[3] Press Release, Financial Crimes Enforcement Network, FinCEN Announces Postponement of Residential Real Estate Reporting Until March 1, 2026 (Sept. 30, 2025), https://www.fincen.gov/news/news-releases/fincen-announces-postponement-residential-real-estate-reporting-until-march-1.

[4] The reporting individual may reasonably rely on information provided by the transferee to determine its intent for the land, absent knowledge of facts that would reasonably call into question the reliability of the information provided to the reporting person. See FinCEN, Residential Real Estate Reporting Frequently Asked Questions, U.S. Dep’t of Treasury, https://www.fincen.gov/system/files/shared/RREFAQs.pdf (issued Feb. 13, 2026).

[5] Ownership interest means rights held in residential real estate property that are demonstrated via a deed or, in the case of a cooperative housing corporation, through stock, shares, membership, certificate, or other contractual agreement evidencing ownership. Transfer of an interest in an assignment contract would not be considered a transfer of residential real property Id.

[6] Reporting individuals should reach out to lending institutions if they are unsure on whether they are subject to these programs and requirements. Id.

[7] A transfer from a qualified intermediary to the person conducting a like-kind exchange remains reportable if the exchanger constitutes a transferee entity or trust. Id.

[8]  Id.

Will the Minnesota Legislature Pass Federal Tax Conformity?

Both the House and Senate Tax Committees have held hearings to discuss the impacts of recent federal tax changes. Minnesota tax policy does not automatically conform to federal tax law changes, thus the issue of whether Minnesota should pass a tax conformity bill was also a topic of discussion. While there are several different conformity provisions that the legislature could consider, the one that seems to be at the top of nearly everyone’s list is the pass-through entity (PTE) provision. This particular provision has strong bi-partisan support, costs the state nothing, and Department of Revenue Commissioner Paul Marquart has emphasized its importance. Still, in the heated political environment that exists, passage is not guaranteed. The House Tax Committee will hold a hearing on the PTE Bill, HF 3127, on Tuesday, March 3. Expect to hear more about this as session progresses.

As Expected, Guns Are a Key Topic

For months, Democrats have been touting their plan to bring numerous pieces of gun-related legislation forward in 2026. Earlier this week, Governor Tim Walz presented his administration’s package of fifteen proposed pieces of legislation to reduce gun violence, including a ban on high-capacity magazines and assault rifles, increased taxes on firearms, mental health supports, safe storage laws, and firearm insurance requirements, among other issues. Also, this week, multiple gun-related bills received hearings in the House, but none received the bi-partisan support needed to advance out of a tied House committee.

State Budget Surplus Grows

On Friday, Minnesota Management and Budget (MMB) delivered the February Forecast, and it was unexpected, good news. MMB announced that the surplus in the current biennium (FY 26-27) has ballooned to $3.7 billion, an increase from the previous projection of $2.465 billion. The projected deficit in the FY 28-29 biennial planning estimates has increased from the previous deficit number of $2.96 billion to a positive balance of $377 million.

Budget Forecast Contains Uncertainty

While cautioning lawmakers on the structural imbalance in FY 28-29, the Forecast stated that “a slightly improved economic outlook drives a higher revenue forecast largely driven by more volatile sources of revenue…Shifting policies at the federal level and missing or incomplete data due to recent federal government shutdowns introduce significant uncertainty to the projections.” It remains to be seen how the impact of the immigration enforcement surge, the freezing of Medicaid funds, and fraud concerns will impact the state budget going forward.

Federal Government Freezes Minnesota Medicaid Funding

The federal government announced this week that it is temporarily withholding approximately $259 million in Medicaid funding to Minnesota, citing concerns about fraud prevention and oversight. Federal officials, including the Centers for Medicare & Medicaid Services, said the pause is intended to ensure the state strengthens safeguards against misuse of federal healthcare funds and has directed Minnesota to submit a corrective action plan within 60 days. Governor Tim Walz and Attorney General Keith Ellison strongly disputed the move, calling it politically motivated and emphasizing Minnesota’s record of prosecuting Medicaid fraud. The funding freeze could affect payments to healthcare providers serving low-income residents, though Medicaid coverage for beneficiaries is not expected to stop immediately. The dispute raises the possibility of legal action and could have broader implications for Minnesota’s healthcare system if the freeze continues or expands.

In a decision likely to influence how courts evaluate privilege claims involving generative AI, the U.S. District Court for the Southern District of New York recently held that a criminal defendant’s communications with a publicly available AI platform (i.e. ChatGPT, Claude, Gemini, and others) were not protected by either the attorney-client privilege or the work product doctrine. United States v. Heppner, No. 25-cr-00503-JSR, Doc. 27 (S.D.N.Y. Feb. 17, 2026). The court’s opinion addressed the novel question of whether communications with a generative AI platform in connection with a pending criminal matter are privileged — holding unequivocally that they are not protected by either the attorney-client privilege or the work product doctrine and were thereby discoverable through the legal process.

The Underlying Case

Following his indictment on securities and wire fraud charges and a grand jury subpoena, Bradley Heppner, without guidance or direction from his attorneys, asked the generative AI platform “Claude,” to outline potential defense strategies and anticipated arguments – generating approximately 31 written exchanges with the platform. At the time of his inquiries to Claude, Heppner knew he was a target of the investigation. Heppner’s legal counsel later attempted to assert privilege over the AI-generated materials, arguing that the documents were created for the purpose of speaking with counsel to obtain legal advice, and the documents were subsequently shared with his legal counsel. Heppner’s attorney, however, conceded that he did not direct Heppner to use Claude. In response, the government argued that the AI inquiries were not protected by either attorney-client privilege or the work product doctrine, and the Court ultimately agreed.

What is the Attorney-Client Privilege

It is a generally-accepted legal principle that confidential communications between an attorney and a client made for the purpose of obtaining or providing legal advice are privileged, and therefore do not need to be disclosed as part of a legal proceeding. This privilege, however, is usually narrowly construed. In Heppner, the court concluded that the AI outputs failed on multiple levels to meet the requirements of the Attorney-Client Privilege:

1. No Communication with an Attorney. At the most fundamental level, the AI outputs were communications between Heppner and Claude and not between Heppner and his counsel. Claude, a generative AI platform, is not a lawyer and doesn’t function or purport to be one. The Court emphasized that, absent an attorney-client relationship, discussions of legal issues between non-lawyers are not privileged. The Court also rejected Heppner’s arguments that Claude should be treated like other internet-based tools (such as cloud word processors leveraged by legal counsel), which can, if used properly, maintain attorney-client privilege. Ultimately, the Court found that privilege depends on a “trusting human relationship” with a licensed professional owing fiduciary duties, not merely on the use of certain software.
2.  No Reasonable Expectation of Confidentiality. Relying on the written privacy policy of Claude’s developer (Anthropic), which states that the company collects user inputs and outputs, may use that data to train the system, and reserves the right to disclose information to third parties, including governmental authorities, even absent a subpoena — the Court held that Heppner could not have had a reasonable expectation of confidentiality in his exchanges with Claude. The opinion also cited recent case law observing that users of publicly accessible AI platforms generally lack substantial privacy interests in such communications.
3. Not Made for the Purpose of Obtaining Legal Advice. Finally, the Court concluded that Heppner was not communicating with Claude “for the purpose of obtaining legal advice” within the meaning of privilege doctrine. Although Heppner’s legal counsel argued that Heppner used Claude in preparation for their conversations, the Court found that Heppner had acted on his own initiative and not at his legal counsel’s direction. The platform itself expressly disclaims providing legal advice and expressly advises to consult a qualified attorney, when prompted to provide such advice. Critically, the Court emphasized that non-privileged communications do not become privileged merely because they are later shared with counsel.

Work Product Doctrine

The Court next addressed whether the AI outputs were protected as attorney work product. Under governing precedent, work product protection applies to materials prepared by or at the direction of counsel in anticipation of litigation. The doctrine exists to protect lawyers’ mental processes and strategic development. The Court’s ruling on the AI output was again clear; AI outputs do not qualify under the Work Product Doctrine.

Although Heppner’s inquiries to Claude may have been prepared in anticipation of litigation, they were not prepared “by or at the behest of counsel.” Heppner’s counsel confirmed that he did not direct Heppner to conduct Claude searches, and the outputs did not reflect counsel’s strategy at the time they were created. While a prior Federal court decision has suggested that, on occasion, the work product protection may extend more broadly to materials generated by non-lawyers, the Court in Heppner held that extending such protection in this case would undermine the Doctrine’s purpose of preserving a zone of privacy for lawyers’ mental impressions. Because Heppner acted independently when creating the AI outputs and because they did not disclose legal counsel’s strategy, they were not afforded protection under the Work Product Doctrine.

Key Takeaways

The Court’s decision in Heppner provides several practical lessons:

1. Communications with Public AI Platforms Are High Risk. Courts may treat exchanges with publicly available generative AI tools as communications with third parties, particularly where provider policies permit data retention, training use, or discretionary disclosure.
2. Direction of Counsel Matters. Materials generated independently by a client, even if intended to aid in future discussions with counsel, may fall outside both privilege and work product protection unless they are prepared at counsel’s direction.
3. Later Sharing Does Not Cure Defects. Non-privileged communications do not “acquire” privilege simply because they are later shared with legal counsel.
4. Vendor Terms Are Legally Significant. Privacy policies and terms of service may play a decisive role in determining whether a reasonable expectation of confidentiality exists.

Conclusion

In Heppner, the Court framed generative AI as a “new frontier” but emphasized that established privilege principles still govern; AI’s novelty, per the Court’s ruling, does not expand the scope of attorney-client privilege or work product protection. Organizations and individuals should carefully evaluate how generative AI tools are used in connection with litigation, investigations, or anticipated disputes, and ensure that privilege-sensitive activities occur under counsel’s supervision and within controlled environments.

If you have questions about the Court’s decision in Heppner or how this ruling may affect your organization’s AI governance, litigation strategy, or internal protocols, please feel free to reach out to any member of Winthrop’s Business & Commercial Litigation team.