The big moment in a real estate transaction is at the finish line, when all parties receive the benefits outlined in the contract. For the seller, the benefit may be proceeds from the sale, allowing them to buy another home, fund their retirement, or just close a chapter and move on. The benefit to the buyer is keys to the property, pride of homeownership, an investment for the future. From there, Realtors receive commissions, contractors are paid for their work on the property, etc.
Because this is the moment that matters most, it’s worth taking a close look at the rules that govern the way title companies receive and distribute funds in a transaction. With the onset of new banking regulations, and the proliferation of electronic methods for moving money around, there’s plenty of room for confusion.
You may have received notices from your title company mentioning “collected funds” (e.g. cashier’s checks) or “live funds” (e.g. wire transfers, or cashier’s checks that have cleared the bank). With the proliferation of homemade (i.e. counterfeit) cashier’s checks, title insurance underwriters assuming the risk for transactions now require the following:
- All checks must be “collected” or “verified” by the bank before funds may be released. (This process typically takes one-to-two business days.)
- The title company may not wire “live funds” until an equal or greater amount of “live funds” are in the escrow account, via wire transfer or verified cahhier’s check.
In the day-to-day…
This requirement often creates collisions between the needs and expectations of buyers and sellers. A common scenario involves a buyer or lender who brings a cashier’s check to closing, and a seller who wants the ease and immediacy of receiving their proceeds via wire transfer. Title companies’ underwriting requirements dictate that if funds for the transaction are received in the form of a check, they can only be paid out in the form of a check, if parties want to receive funds on the same day. Once the checks have been verified by the bank (again, typically in one-to-two business days), the title company can wire funds to the seller. For some, this becomes a significant issue touching on perceptions of good faith, where the buyer feels they have done their part by bringing their money, yet the seller is not comfortable handing over the keys until the proceeds are in their bank account.
There are clear remedies depending on where you are in the transaction:
- The most effective strategy is to ensure that both the buyer and their lender deliver all funds via wire transfer. This starts with good communication between Realtors and their clients from contract negotiations to closing. Finding out about the seller’s expectations about receiving proceeds, and working out those details in advance will save a lot of last-minute confusion at closing.
- When selecting a lender, make sure they have procedures in place to send funds via wire transfer.
- Some buyers and sellers may not have any experience sending funds via wire, and may believe this to be a complicated process.* A good title company will provide wiring instructions to all parties early on, and should be available to answer any questions. *One important thing to note in working with your bank is that “ACH” transfers (typically created via online banking, when you send payments from your account over the internet) is not the same thing as a wire transfer. Please contact your bank for instructions on their wire process. Sending any funds via ACH/online payment will result in a delay in funding.
- In a scenario where funds are received via cashier’s check, the seller can receive their proceeds the same day in the form of a check from the title company. Most of us who have been in the business a while remember that this was standard procedure in the good old days prior to electronic transfers. Some sellers may actually prefer to receive a check in their hands, as something tangible.
Effective communication is key…
Communication is the single most important ingredient in a smooth closing. Make sure you’re working with a title company and closing team that is responsive and experienced, and keep in mind that we all have the same goal: closed transactions and happy clients!