From OAR: Common questions about Ohio’s ‘Good Funds’ law about wire transfers
By Peg Ritenour, OAR Vice President of Legal Services/Administration
In 1996, Ohio’s “Good Funds” law went into effect. This law defines the type of funds that can be accepted by an escrow or closing agent in a residential real estate transaction to assure that the funds are truly in the possession of the closing or escrow agent before being disbursed.
The law has worked well for the last 20 years, but recent problems with fraudulent checks, including money orders and certified checks, prompted the Ohio Land Title Association to initiate amendments to the “good funds” law to further restrict the types of funds that can be accepted. Such language was included as an amendment to other legislation on the last day the Ohio Legislature was in session at the end of 2016. The changes become effective on April 6.
Under the new legislation the following will now be considered acceptable funds for your real estate closings:
- Checks drawn on a real estate brokerage trust account. There is no dollar limit on brokerage checks;
- Government checks issued by the U.S., the state of Ohio, or an agency, instrumentality or political subdivision of the U.S. or State of Ohio, or funds transferred electronically by such entities via the automated clearing house (ACH) system;
- Cash, personal or business checks, certified checks, money orders or official checks drawn on an existing account at a federally insured bank, savings and loan, credit union or savings bank that do not exceed an aggregate amount of $1,000;
- Electronically transferred funds via the real time gross settlement system provided by the Federal Reserve banks.
So what this means is that your buyer (or a seller who has to provide funds to close) will no longer be able to bring cash, a personal or cashier’s check or money order to a closing if the aggregate amount exceeds $1,000. Instead, such funds will have to be wired.
This has raised many concerns among REALTORS about how this may impact their clients and the closing process, especially back to back closings. Below are answers to some of the questions that REALTORS have asked about the new law.
Q. When did this become effective?
The new provisions became effective on April 6.
Q. Who pushed for this legislation and why?
The change to the “good funds” law was initiated by the Ohio Land Title Association and was supported by lenders and credit unions. These amendments were sought as a result of numerous instances of escrow agents receiving fraudulent money orders and cashier’s checks. According to OLTA, this legislation is designed to protect consumers from fraud, preserve the integrity of funds that are held and disbursed in a real estate transaction, and to create efficiency for service providers.
Q. I keep hearing about instances of cyber fraud taking place in real estate closings, resulting in parties losing thousands of dollars. Isn’t this expanded use of money wires going to expose the public to greater risk?
You are correct that cyber fraud is occurring here in Ohio and across the country. However these problems are not caused because the wiring process itself is untrustworthy. Instead, it is caused by breaches in security that allow hackers to break into emails and send phony wiring instructions re-directing funds to the hacker’s dummy account. The risk of cyber fraud can be greatly reduced by educating your clients to never wire funds based on an email without calling an independently verified phone number to confirm the instructions. Moreover, REALTORS are advised that they should not be involved in the communication of bank account or routing numbers.
Q. Does the new law apply to commercial real estate transactions?
No, it only applies to residential transactions. “Residential real property” is defined as any real property improved or to be improved with a one- to four-family dwelling.
Q. A local title company told me that they will no longer be able to accept a check drawn on my brokerage trust account. Someone else said only trust account checks under $1,000 will be accepted. Are either of these true?
No! This inaccurate information was circulated by one group and was unfortunately shared with some REALTORS and local Boards. The new law still recognizes checks drawn on a real estate brokerage as “good funds” and the $1,000 limit does not apply to brokerage trust account checks. Therefore a check drawn on your trust account in any amount will still be accepted by the escrow agent.
Q. So the requirement to wire funds applies to amounts over $1,000, correct?
The requirement to wire funds will apply if the aggregate amount of cash, personal, business, cashier, or official checks or money orders exceeds $1,000.
Q. Could a buyer bring an $800 personal check and a $900 money order to closing since they are each below the 1,000 limit?
No, because the aggregate amount of the two checks exceeds $1,000 this would not be considered “good funds” under the new provisions.
Q: A broker brings a $15,000 check drawn on his brokerage trust account to the closing. If the seller needs to bring an additional $1,000, can he bring a personal check or does the brokerage check count toward the aggregate amount?
The seller can bring a $1,000 personal check because the brokerage trust account check does not count toward the aggregate limitation of $1,000.
Q. For checks $1,000 or less, is there any type of limitation on the type of institution on which that check is drawn?
Yes. Such checks must be drawn on an existing account at a federally insured bank, savings and loan, credit union or savings bank.
Q: I understand that some lending institutions charge a fee for a wire transfer. Will I be responsible for paying that for my client?
Most lenders do charge a fee for a wire transfer that may range from $15-$30. The party responsible for paying that fee is the person obtaining the wire transfer. As the agent or broker, you have no legal obligation to pay that fee for your client. It is recommended that you advise your client to discuss such fees with their lender.
Q. Why was the $1,000 limit placed on cash?
This was based on concerns about money laundering in real estate transactions.
Q. I work with some clients — the Amish, for example — who strictly deal with cash. How will they be able to provide funds for the transaction?
Such persons may have to open a bank account or figure out another way to have the funds placed in an account at a lending institution that will be able to wire funds exceeding $1,000. For example, they could provide the cash for deposit in their attorney’s account and then have the attorney wire the funds to the title company. If you believe your client plans on using cash, it is important to inform them about this change in the law early in the transaction so that they can take the necessary steps to comply.
Q. Since real estate brokerage trust account checks are still acceptable, could I accept the cash from my client, deposit it in my brokerage trust account and then bring a trust account check to the closing?
Yes. However under federal law, cash over $10,000 must be reported to the IRS on form 8300, so it will be necessary for your brokerage to file this form if you accept cash over $10,000. I would also recommend that this be discussed with your brokerage’s attorney before doing this because of money laundering concerns.
As to accepting a check from your client, you would need to make sure that this check has cleared and the funds are actually in your trust account before you provide a check to the escrow or closing agent.
Q. Am I required to add any language to my purchase contract as a result of this change?
No, nothing in the legislation requires you to add any language to your purchase contract, although you may wish to do so to put the parties on notice that a wire transfer will be required for any funds over $1,000. Such language could state something to this effect:
“Ohio law requires that closing funds over $1,000 be electronically transferred to the closing/escrow agent. Buyer is advised to consult their lender and closing/escrow agent for wiring requirements to assure that the funds are received in a timely manner.”
Q. Instead of changing my purchase contract could I give my clients a separate form that notifies them about the need to wire funds?
Yes, while not required by law, this is another option to make sure that you clients are aware of the wiring requirements. I would suggest that you include a place for your client to sign such a form so that you have documentation that it was provided.
Q. Will closings be delayed because funds have to be wired?
Not necessarily. Wiring funds is generally considered to be a quick and efficient method for lenders to electronically transfer funds to one another via the real time gross settlement system provided by the Federal Reserve System. As long as the parties discuss the wiring requirements with the escrow agent and their lender prior to closing and take the necessary steps to assure that the funds are wired in advance, there shouldn’t be a problem.
Q. I have heard that wire transfers made in the afternoon may not go through until the next day. Is that true?
That may be true. Each lender determines its own cut off time for accepting wired funds. Therefore, it is crucial for your clients to discuss this with their lender to make arrangements to assure that the necessary funds are wired in a timely manner to avoid delays.
Q. Is there a limit on how much money that a lender can wire at one time?
I have not heard of that, but clients may want to check with their lender to make sure the funds don’t have to be wired in increments.
Q. I have been told that wiring funds on Friday for a Friday closing should be avoided in case there is a problem.
There is always a risk that some type of problem may occur with a Friday closing that could delay it until the next week and a wire transfer delay could be one of those issues. However, as long as the lenders’ cut off time for wire transfers are met, this shouldn’t be a problem. Again, early discussions with the lenders and planning will be crucial to avoid closing delays.
Q. My seller is having back-to-back closings on the same day. The closings are being held at different title companies. Will the seller be able to endorse over the title company’s check for the proceeds of his sale to the title company closing on the purchase of his new house in the afternoon?
No, not if the check is for more than $1,000. That is because checks drawn on the title company’s account that are over that amount are not considered to be “good funds” under the new law. To facilitate back to back closings, it will be necessary for the title company who closed the sale of your seller’s home to wire the funds to the title company handling the closing on the purchase of his new home. To assure that the lenders’ cut off times are met, it will be important to establish what those times are and to schedule the closings accordingly.
Q. What if the same title company is handling both closings?
That will certainly make things much easier. In that case the seller can instruct the tittle company to apply his proceeds to the second transaction.
Q. I represent a seller who is going to have back-to-back closings. In the event that there is a wiring problem that delays the second closing, should the purchase contract provide for the seller to retain possession of the house he is selling for a few days after closing?
As stated above, there are a myriad of issues that can occur with these types of tight closings situation that may make such an extended possession desirable for a seller. The possession date in the contract is certainly something that should always be discussed with the seller.
Q. Is this new requirement to wire funds an attempt to force the parties to use escrow closings instead of “round table” closings?
While escrow closings are the “norm” in northeast Ohio as they are in many parts of the country, they are not as common in other parts of our state. I have heard nothing to lead me to believe that the intent of this legislation was to push parties to close in escrow.
Q. Do these new provisions regarding wiring funds apply when the government is the buyer?
Checks from the United States government, the state of Ohio or from any agency, instrumentality or political subdivision of those are considered acceptable, regardless of the amount. These entities can also initiate the transfer of funds via an electronic ACH (automated clearinghouse system).
Q. Can a buyer use the ACH system instead of wiring funds?
No. Although initially it was believed that the parties could utilize this method to electronically transfer funds, a closer reading of the legislation limits use of this system to only the government entities mentioned above.
In conclusion, just like the TRID changes in 2015, these amendments to Ohio’s “Good Funds” law will be an adjustment for REALTORS and their clients. The key to assuring that the necessary funds are wired in a timely manner and that closings aren’t delayed is educating your clients, early communication with lenders and the title or escrow agent, and advance planning.
Reprinted from the Ohio REALTOR magazine (Winter/Spring 2017). Legal articles provided in the Ohio REALTOR are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.