To protect real estate buyers and sellers and to prevent bank fraud, “good funds” laws are in effect across the nation. These laws set requirements for acceptable forms of closing funds and help ensure that money funding real estate purchases and refinancing transactions are secure for disbursement at the time of closing.
According to the American Land Title Association (ALTA), the requirements in good funds statutes act as a deterrent to fraud, provide certainty in real estate transactions for consumers, and create stability in the economic marketplace.
So, what, exactly, are good funds for real estate closings? A couple examples include a wire or cashier’s check. With a wire, the funds are wired from your bank directly to the title company’s bank via the Federal Reserve and are immediately available. Similarly, with a cashier’s check, funds are immediately available from your bank and usually clear right away.
Good funds laws and their stipulations differ from state to state, but all have the same goal of dictating what sort of funds can be disbursed into an escrow account, preventing missing funding. Let’s take a look at the good funds laws in Michigan and Florida.
Good Funds Law in Michigan
Michigan homebuyers are protected by the Residential Closing Funds Distribution Act of 2005, or the state’s “Good Funds” Law, which makes sure that checks disbursed at the closing table are backed by good funds at the time of issuance and not dishonored when presented to the financial institution upon which they are drawn.
The act requires a mortgage lender, mortgage loan broker, etc., to cause disbursement at or before closing of loan funds to the settlement agent in one of the following forms:
- Cash
- Wired funds
- Check issued by the state or one of its political subdivisions
- Cashier’s check
- Teller’s check or other official check issued by a financial institution and drawn on or payable through a financial institution within the same Federal Reserve check processing region as the location of the settlement agent
- Check issued by a federal government instrumentality organized under the Farm Credit Act of 1971 (i.e., credit unions)
Under the act, settlement agents are prohibited from disbursing any funds from an escrow or settlement account in connection with a mortgage loan transaction until the settlement agent receives the disbursement of loan funds (and any additional funds provided by the borrower or a third party). Additional funds over $1,000 must be provided in one of the accepted forms of payment.
Real estate licensees may write checks on their escrow or trust account, as long as the check is drawn on or payable through a financial institution within the same Federal Reserve check processing region as the location of the settlement agent.
In addition, the act gives closing agents, such as Vanguard Title Co., the responsibility of holding disbursement until it has been determined that funds have been delivered by one of the accepted forms. Checks received at closing are virtually guaranteed for payment.
Good Funds Law in Florida
In the state of Florida, restrictions on what constitutes good funds are outlined in its Good Funds Statute (69O-186.008). The statute’s “Escrow Requirements” specifies that funds received in the form of a cashier or personal check cannot be considered good funds until after the check has cleared the title company escrow account.
Settlement agents and title companies in Florida are prohibited from making any disbursements to buyers or sellers of residential real estate unless such payments meet the legal definition of good funds in the statute. Buyers must prove they have the required cash due at closing and provide the funds in the manner associated with the amount.
Good funds payment may come in the following forms:
- Bank wire transfer – This method must be utilized for any cash due at closing exceeding $500. To complete a wire transfer, the consumer must meet with a bank representative holding the required funds, who will work with the title company to verify wiring instructions. A wire transfer is considered guaranteed funds as soon as deposited into the escrow account.
- Bank cashier’s check – Consumers may obtain a cashier’s check when funds due at closing exceed $500 but are under $10,000. However, the funds must be deposited into the title company escrow account and held for a period to ensure the validity of the check. The consumer must go to the bank holding their funds and have the bank representative create the cashier’s check for them.
- Personal check – This is permitted when funds due at closing are under $500.
According to Florida guidelines, funds paid by cashier or personal check are not automatically available for disbursement. The title agency is then responsible for the disbursement of all funds according to closing documents, including paying Realtor commissions, mortgage payoffs, and title and county agency fees.
Vanguard Title Gives You Good Funds Options
As you can see, without good funds laws, entire escrow accounts could be jeopardized. At Vanguard Title Co., our team of professionals is well versed in good funds legislation. Plus, we make sure that delivering good funds for our customers’ real estate transactions is easier, safer, and quicker than ever.
When it comes time to submit your money to the title company, we give you options, including:
- Vanguard Title ePay – Our convenient earnest money ePay method is available 24/7, and is fully electronic, encrypted, and secure. It can initiate a transfer within 90 seconds, connect to any financial institution in the U.S., and issue automated receipts.
- Wire transfer – When closing funds needed are above $25,000, you may pay via wire transfer, featuring full ID verification and no extended waiting period for cleared funds.
- Certified funds – You may also pay closing funds or earnest money deposit via certified check, up to $25,000.
- CertifID – We partner with CertifID, an easy-to-use technology solution, to securely exchange wiring information and guarantee each wire transfer up to $1,000,000.
We know that buying a home is the most significant and costly purchase one will make in his or her lifetime. That’s why we go the extra mile to protect Michigan and Florida homebuyers during these milestone transactions.