Do Not Delay the Close of Escrow of Your Transaction by Using the Wrong Wire
Your offer has been accepted and it is now time for you to proceed with the payment of your initial deposit AKA earnest money deposit (EMD) or the balance of the down payment with your personal funds after the amount of your loan was wired to the title company trust account by your lender when applicable.
Unfortunately, too many times, buyers are not fully aware that title companies do not accept all types of payments resulting in delays to the close escrow of their transactions which can be detrimental to all parties involved.
Therefore, you will find below a synopsis of the payment procedures approved by the title companies and those that are declined by them.
For title companies, all wires are not alike. They only accept what is commonly known as “good funds”. Section 12413.1 of the California Insurance Code, requires that an escrow company and title company have in possession sufficient good funds in order to close a transaction. Simply put, “good funds” are funds that are immediately available to the title companies upon deposit.
1. American Bankers Association (ABA) Wires
Every bank in the country has its own ABA routing number which consists of nine digits that identify the bank’s location when processing payments. Also called routing number or routing transit number (RTN), this number makes it possible for banks to transfer money to and from their customers' accounts for transactions like wire transfers. Title companies encourage buyers to use ABA wires mainly for 2 reasons: 1. These funds are available for immediate credit as they are electronically transferred into the title company trust account from the client’s bank account. 2. The sending bank has verified cleared funds in the sender account before sending the wire.
2. Official Checks
Official checks are used by Credit Unions. They are similar to cashier’s checks and are widely accepted by title companies, corporations, and individuals as a reputable means of payment. An official check is a check that the Credit Union issues on your behalf that serves as a guarantee of funds. In other words, the funds are first withdrawn from your account before the check is issued to you.
3. Cashier’s Checks
Title companies require cashier’s checks to be issued from a California bank. Before they issue a cashier’s check, the banks will verify there are “cleared funds” in the account. Cashier’s checks can only be considered good funds by a title company once deposited into the title company trust account and once cleared from the issuing bank meaning until it has been paid by the issuing financial institution.
4. Automated Clearing House Transfers (ACH)
These transfers are not the same as wired funds. Although both wires and transfers are done electronically, there is a major difference between the two of them: ACH transfers can be unilaterally recalled by the person sending the ACH up to 90 days after the transfer. This does not meet the “good funds” requirements for title companies. As a consequence, escrow trust accounts are blocked from sending or receiving ACH transfers.
5. Money Orders
Title companies do not accept money orders for closing purposes for simple reasons: money orders are not guaranteed funds under the provisions of Reg. CC (Section 12413.1 C.I.C.) which deals with the availability of funds and the collection of checks. There is also the possibility of them being fraudulent and it can take weeks before they are returned or payment can be verified. Lastly, they cannot be tracked. As a result, title companies do not, under any circumstances, accept money orders as they do not constitute good funds.
6. Personal Checks
A personal check is a paper slip from your bank, credit union, or financial institution that is signed by the account holder. It comes from a personal checking account and includes the amount of money to be withdrawn, the checking account number, the routing number, and the payee’s name. Personal checks are unsecured, meaning that if the funds are not in the issuer’s personal checking account when cashed, the check may bounce. As a result, personal checks are not considered “good funds” by title companies and cannot be used by them for closing purposes.
Hope this helps. Should you have any questions regarding this matter feel free to contact me.