New Indiana legislation (House Enrolled Act 1374) provides that after June 30, 2009, all funds received in escrow in connection with a real estate transaction must be deposited in an escrow account unless the parties to the escrow transaction agree in writing to another arrangement. The Act prohibits a closing agent from making disbursements from an escrow account unless funds received from any single party to the real estate transaction in an amount of $10,000 or more, in the aggregate, are wired funds unconditionally held by and irrevocably credited to the closing agent's escrow account. It prohibits closing agents from making disbursements from an escrow account unless funds received from any single party to a real estate transaction in an amount less than $10,000 in the aggregate are good funds as defined by the Act. Therefore, individual cashier's checks from a buyer in individual amounts less than $10,000 are not acceptable if the total amount of the checks when, added together, are $10,000 or more. The funding requirements are applicable to any party depositing money into your escrow account including a lender, seller and borrower/purchaser.
The Act defines good funds (for amounts less than $10,000) as follows:
- United States Currency
- Wired funds unconditionally held by and irrevocably credited to the escrow account of the closing agent
- Certified or cashier's check drawn on an existing account at a bank, savings & loan, credit union or savings bank chartered under the laws of a state or the United States
- A check drawn on the trust account of a real estate broker licensed under IC 25-34.1 or the escrow account of another closing agent if the closing agent has reasonable and prudent grounds to believe that sufficient funds will be available for withdrawal from the account on which the check is drawn at the time of disbursement of funds from the closing agent's escrow accounts
- A personal check not to exceed $500 per closing
- A check issued by the state, the United States or a political subdivision of the state or the United States
- A check issued by a farm credit service authorized under the Farm Credit Act of 1971 (12 USC 2001 et. seq.)
It is important to note that ACH funds or electronic transfer funds are not the same as wired funds unconditionally held by and irrevocably credited. Funds transferred electronically by wire through the Automated Clearing House (ACH) are not acceptable. Funds transferred through the ACH network can be recalled by the originator up to 90 days after the transfer. Only funds wired electronically through the Federal Reserve Bank will satisfy the Act's requirements. See National Legal Bulletin SLS2007003 for more information on the differences between ACH transfers and wired funds. As stated previously in National Legal Bulletin SLS2007004, to further protect wired funds, closing agents may elect to set up a separate trust or escrow account to receive all incoming wire transfers and immediately upon receipt, re-transfer the funds into a secure escrow account or trust account.
The speed of funds transferred electronically by wire depends on which Federal Reserve Bank the wire goes through and the volume the Federal Reserve is handling at the time. Many banks also have a certain time, typically in the late afternoon, by which they will no longer initiate wires. Given these wiring variables, scheduling back-to-back closings an hour apart at different locations may not be feasible unless the closing agent is handling both closings. As a result, real estate agents, lenders, homeowners and closing agents will need to work together to schedule closings to accommodate the receipt of wired funds by the closing agent.
The new law applies to any person closing a purchase or refinance transaction and who is required to be licensed as title insurance producer under the Indiana Insurance Code. Enforcement of the law is under the jurisdiction of the Indiana Department of Insurance. Lenders or employees of lenders who close and disburse in the office of the lender on a refinance loan provided by the lender and secured by a mortgage on real estate are exempt from the law's funding requirements.
The Act also provides that a lender whose mortgage is being paid off at closing may request that its payoff be in the form of wired funds as long as wired funds are deposited in the closing agent's escrow account in an amount sufficient to cover the payoff. If the closing agent is required to pay off a home-equity line or line of credit in the form of wired funds, the borrower will still need to sign a request to close account letter to be transmitted to lender by overnight mail or other means acceptable to closing agent and lender.
The law permits a closing agent to advance up to Five Hundred Dollars ($500) from an escrow account for the purpose of paying incidental fees to effectuate the purchase or mortgage transaction, including conveyance and recording fees. Examples of incidental fees may be fees for preparing and recording a deed necessary to clear title prior to closing. Funds are still required to be deposited into the closing agent's escrow account to cover incidental fees for a specific real estate transaction.
The following note should be added to your title commitments, email, fax and other correspondence stating the following or using substantially similar language in order to alert your customers to the new funding requirements:
Note for information: Effective July 1, 2009, HEA 1374 concerning Good Funds in real estate transactions requires funds deposited into an escrow account for closing from any party to the transaction in amounts over $10,000.00 to be in the form of an irrevocable wire transfer. Funds deposited into an escrow account for closing in an amount less than $10,000.00 must be in the form of cash, irrevocable wire transfer, cashier's check, certified check, check drawn on the escrow account of another closing agent or check drawn on the trust account of a real estate broker licensed under IC 25-34.1. Personal checks exceeding $500.00 will not be accepted.
If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.
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