By: Stephen D. Richman, Senior Counsel-Kohrman, Jackson & Krantz
This…
is …. Jeopardy. Our single category today is Obsolete Ways of Doing Business.
Here is the clue: On and after April 6, 2017, this form of
doing business (in residential real estate transactions in Ohio) will join the Dictaphone,
pay phone, typewriters, original documents and carbon copies as a now obsolete
way to do business. And the
question-answer is? What is paying
funds to escrow/title agents in the form of cash, personal checks, money orders
and certified checks for amounts exceeding $1,000.
In other words, on and after April 6, 2017 (the effective date of
the law), title/escrow agents can only accept wire transfers of funds over
$1,000 in “residential transactions” (defined as transactions regarding any
real property improved or to be improved with a one-to four-family dwelling)
in Ohio. The
reason is that Ohio’s “Good Funds Law”, Ohio
Revised Code Section 1349.21 was amended as part of Ohio HB 463 signed in December of last year. Prior to the
amendment, only personal checks over $1,000 were prohibited methods to transfer
funds. For a copy of ORC 1349.21 (prior to and after amendment), see: http://codes.ohio.gov/orc/1349.21.
According to the Ohio Legislature, “The goal of the legislation was and remains
(after its amendment) to protect against fraud and to preserve the integrity of
consumer funds that are held and disbursed in real estate transactions.”
There are two basic exceptions to the
law’s general rule that funds over $1,000 in residential transactions in Ohio
must be wired to escrow. The first is regarding funds originating from
brokerage trust accounts. Title agents are permitted to accept checks drawn on
a broker’s trust account with no dollar limitation. So, for example, if a
broker is holding a $15,000 earnest money deposit, a $15,000 check drawn on the
broker’s trust account can be accepted by the title company. The second
exception is that funds initiated by the
United States, State of Ohio, or by an agency, instrumentality or political
subdivision of either may be in the form of a check or Electronic ACH.
The Ohio Land Title Association (OLTA)* has published the
following (re-printed with permission), FAQ’s summary of the law, as amended:
OLTA
OHIO GOOD FUNDS LAW FAQs
(Related to ORC §1349.20-§1349.22 and the changes to ORC §1349.21,
effective April 6, 2017)
Q:
Does the law only regulate funds
collected from the consumer (buyer/borrower/seller)?
A:
No. This aspect of the law has not changed, the law regulates any and all funds
collected by an escrow or closing agent in connection with an escrow
transaction involving residential real property. So, it also regulates the
funds collected from a lender as well as from a consumer.
Q:
Is it permissible to use cash over
$1,000 if it is deposited in the escrow account of the closing agent in advance
of closing?
A:
No. The law only permits cash if it is in the amount of $1,000 or less AND it
is physically received by the escrow agent prior to disbursement AND intended
to be deposited no later than the next banking day after the date of
disbursement.
Q:
Does an “internal transfer” of funds
from one account to another at the same institution qualify as “electronically
transferred funds” under the law?
A:
No. All electronically transferred funds must be sent via the real time gross
settlement system provided by the federal reserve banks (i.e. wire transfer)
and must be immediately available for withdrawal and disbursement.
Electronically transferred funds may also be sent via the automated clearing
house (ACH) system only if they are initiated by the United States, State of
Ohio, or by an agency, instrumentality or political subdivision of the United States
or the State of Ohio.
Q: If the buyer needs to bring $1,200 to
close, is it acceptable if they bring a $1,000 cashier’s check and $200 in
cash?
A:
No. Cash, personal checks, business checks (other than those drawn on a real
estate broker’s trust account), certified checks, cashier’s checks, official
checks, or money orders must be in an aggregate amount not exceeding $1,000.
Any checks or money orders must also be drawn on a federally insured bank,
savings bank, savings and loan, or credit union.
Q:
If the buyer has given the real estate
broker $2,000 in earnest money, and the broker brings these funds to closing,
can they be used?
A:
Yes. As long as the broker brings these funds in the form of a business check
drawn on the broker’s special or trust bank account (as defined under ORC
§4735.18(A)(26)) these funds can be presented at closing. There is no limit on
the amount of a check from the broker’s account.
Q:
Can an escrow or closing agent accept a
cashier’s or certified check over $1,000 if it is deposited in time to “clear”
the bank before disbursement?
A:
No. The law only permits cashier’s or certified checks in an aggregate amount
of $1,000 or less.
Q:
If the buyer needs to bring $1,500 to
closing and has given the real estate broker $1,000 in earnest money, can the
buyer use the earnest money and bring the difference in the form of a personal
check?
A:
Yes. As long as the broker draws the $1,000 on the broker’s special or trust
account, the consumer can bring the difference in the form of a personal check.
The broker’s trust account check does not count toward the aggregate limitation
of $1,000 for cash, personal checks, business checks, certified checks,
cashier’s checks, official checks or money orders.
Q:
Is the law only applicable to
residential transactions?
A:
Yes. This aspect of the law has not changed. The law only applies to
residential real property transactions which are defined as any real property
improved or to be improved with a one-to four-family dwelling.
Q:
If all parties to a residential real
property transaction agree and instruct that other forms of funds are
acceptable in that transaction, can the escrow or closing agent follow this
separate instruction?
A:
No. The terms of the law must be strictly followed and does not permit the
consumer, lender, or escrow or closing agent to alter the types of acceptable
funds in a residential real property transaction.
Q:
Is a check from another title company
for greater than $1,000.00 is exempt from the rule. In other words, can a title
company which takes seller’s proceeds for seller to buy new send those funds by
check to the new title company. In other words, are title company to title
company checks exempt regardless of the amount of the check.
A:
The answer was no, we came to the conclusion that the statute is clear that
title company checks are not exempt from the rule.
Q: Does it apply to refinances?
A:
Yes. It applies to all residential transactions.
Q: Does it apply to cash deals?
A:
Yes. It applies to all residential transactions.
Q: What about a bank funding into a bank account? A situation with
a lender like Union Savings Bank that funds their refinances into the Escrow
Account of the Title Agency that is an IOTA Account set up at the same bank.
A:
The lender will not be able to do an ACH into your account. They will have to
send the funding by wire via the real-time gross settlement system provided by
the Federal Reserve banks, as outlined in the code.
Q: With the increase in wire fraud, doesn’t this make it riskier
for the consumer?
A:
If the proper procedures are put into place to make sure that any wire
instructions are provided in person or verified by the parties prior to being
sent, the risk of not having funds available for disbursement or being told
they did not clear, post-closing, stop the consumer from being harmed.
Fraudulent Certified Checks and Cashier’s Check pose a greater risk to the
consumer than a wire.
Q: Bank branches set limits on the amounts that can be wired from
a consumer account.
A:
It seems like mobile banking limits the amount that can be wired from an
account but not an actual branch visit in order to initiate the wire, although
this may vary by bank. We have also instructed the agents to let their
customers know when the order is opened, that the money needed from all parties
will need to be in the form of a wire for any amount over $1,000, so they need
to check with their bank to see what that banks policy is on sending wires. If
they will only be able to send increments of the total each day, they will need
to start the process early, in order to have the full amount of any funds
needed on the day of disbursement.
Q: Is the law applicable to only residential transactions
A:
Yes
Q: Does the new law apply to escrow funds pertaining to out of
state transactions?
A:
If the money for this transaction will be received and disbursed from the Ohio
IOTA account, then it will have to follow this law. The only exception to this
would be for a Commercial transaction, as this does not apply to commercial
deals.
Q: Does the statute totally prohibit the taking of all but the
enumerated checks or can we take checks as long as no disbursement is made from
the escrow account until that check has cleared, in other words, if I [title/escrow
agent] get an earnest money deposit of $10,000.00 in check form but my
transaction is not closing for 60 days, and there will be no disbursement on
that file for 60 days can I accept that check?
A:
Unless the funds are for Earnest Money and those funds were sent to us from the
Real Estate Broker from the Real Estate Brokers Trust account, all deposits
will need to be in the form of a wire. The above scenario is most likely to
happen in a commercial transaction though, which would not be covered by this
rule.
Q: How does this affect “back-to-back” closings in round-table
areas?
A:
Back-to-back closings currently come with many challenges and the change to the
Good Funds Law will not meaningfully change the structure. For many reasons
(title defects, underwriting issues with new loan, slow delivery of documents,
delay in delivery of remotely-signed documents, delay in receipt of lender’s
funds on day of close, etc.), it can be difficult to synchronize two closings
to happen within a few hours on the same day. Such a structure is discouraged
because it can lead to additional complications for a seller (soon to be buyer)
when a variable on the first transaction causes delay in closing and/or disbursement
and impacts their ability to close on the second transaction. For various
reasons, many title companies already require that the funds from the first
closing be wired for the second closing. For all residential transactions, this
will now be required (unless such proceeds are $1,000 or less). Title
professionals have already been discussing ways to efficiently verify and
securely wire funds from one company to another and closings should be
scheduled to allow reasonable time for the funds to be wired from one company
to the next.
*The Ohio Land
Title Association serves to advocate and advance its members’ educational,
ethical, and professional interests. OLTA benefits the public by promoting
quality and integrity in real estate transactions. OLTA promotes safe and
efficient transfer of ownership, provides educational opportunities, and is a
legislative advocate. To learn more
about the Ohio Land Title Association, log on to their website at: http://www.olta.org/.
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In addition to amending Ohio’s Good Funds Law, Ohio HB 463, effective April 6, 2017 also: makes permissive the
awarding of actual damages and attorney's fees in housing discrimination cases
before the Civil Rights Commission; expedites foreclosures regarding
court-certified abandoned properties, bans the use of plywood to secure vacant
residential properties and makes certain other modifications to Ohio’s
foreclosure laws, housing creditor rights laws and UCC laws. For a legislative summary of Ohio HB 463, log on to: https://www.legislature.ohio.gov/download?key=6187&format=pdf.
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