Opening Titles & Closing Remarks

Ask the Title Guy – How do I make sure that my closing is wired? Part 2

Beginning July 1, 2009 the logistics surrounding many Indiana real estate closings will become even more complicated.?House Enrolled Act 1374effectively requires that most funds received by a title company or settlement agent for a closing be wire transferred. Cashier’s and certified checks will only be acceptable for amounts under $10,000. The Indiana Department of Insurance is the responsible agency for monitoring compliance with the law.Title agents that ignore this law risk licensing actions by the DOI.

The biggest concern my clients express is that complying with the new law will result in even more delayed closings. There are a lot of reasons why closings get delayed. Right now the most common reason is that the lender is unable to meet the scheduled closing date. Lately, about twenty-five percent of our closings are being rescheduled at the last minute due to loan approval issues. Until we have the lender’s closing instructions and their approval of the HUD-1, we are unable to provide a firm figure to the buyers. And without a firm figure, the buyer of course, cannot initiate a wire transfer of funds.

Here’s a suggestion for avoiding a wire transfer induced delay. It won’t work in all situations, but you may find it helpful.

If there are two or more buyers they can each provide a cashier’s check and avoid the wire transfer requirement if each of their respective shares of the funds needed for closing is less than $10,000. For example,?if two buyers need $16,000 to close, each one can provide a cashier’s check for $8,000. (I don’t even think that it needs to be separate checks.)

Be sure to check with your title company or settlement agent and make sure that this suggestion is acceptable to them.

If the buyers each need more than $10,000 to close I strongly suggest that they wait to initiate their wire transfer until the exact amount is known. The law makes no provisions for?providing some of the funds as wire transfers?and some funds as cashier’s or certified checks if more than $10,000 per party is needed.?In my opinion requiring buyers to make two wire transfers is worse than waiting until you have an exact number.

My next post will address how what time you schedule your closings for will help or hurt your chances for an on time closing

Ask the Title Guy – How do I make sure my that closing is wired? Part 1

I hope that by now all Indiana Realtors?, mortgage lenders and other real estate professionals know about Indiana House Bill 1374.?This new law, which is effective on July 1, 2009, prohibits title companies from disbursing real estate closings without funds over $10,000 having been wire transferred to the title company. I summarized the law in an earlier post here.

During the month of May I watched our business with an eye towards how this new law might disrupt or enhance closings.?Reviewing our deposit records I see that?about one-half of our purchase closings would have required the buyer to wire us funds had this law been in effect last month. We’ve also talked?with a number of banks to get an idea of the process that will be involved for buyers needing to wire their funds.

The most important thing we can do is to prepare buyers and sellers.Managing expectations will go a long way towards keeping the closing a pleasant experience for all. Buyers should be made aware in advance that wiring their money may be required. Sellers must be cautioned that there’s a possibility that funds may not be available immediately at the closing.

The biggest change is for buyers, who often are going to be required to wire their closing funds.?After talking?with several banks it seems that three or four hours is the average time that (meaning some will take longer) it will take for a wire to be initiated by the buyer at their bank and received by the settlement agent’s bank. Many banks have early afternoon cut offs for processing both outgoing and incoming wire transfers. This will result in some wire transfers not being completed until the following day.

Instructions for wire transferring funds to our escrow account are now included with each title insurance commitment we issue. Give the buyer a copy of those instructions when you receive the commitment. We are distributing an information package?to our customers that answer many of the questions that will no doubt come up. The package will help you explain the process to buyers and sellers.

Don’t lose sight of the fact that although this is a significant change for Hoosiers, over thirty other states have enacted some form of this type of law. Real estate transactions continue to take place in each of those states. ?I’m certain that it won’t take long before wiring funds to the settlement agent will be just another routine aspect of the transaction.

Over the next few days I will be sharing my thoughts on likely scenarios. Please check back regularly.

Monroe County Property Tax Update – Bills In the Mail

Here’s an update on the situation with real estate taxes based upon actual knowledge and an informal telephone survey made yesterday.

The Monroe Country Treasurer mailed property tax bills Friday May 29th. We are now using the 2008 pay in 2009 real estate tax amounts for all payments and prorations.?The first installment of Monroe County taxes is due Friday June 26th.

Greene County property tax bills are mailed and the first installment is also due June 26th.

Owen County property tax bills were mailed in April and their due date was the statutory May 10th.? Congratulations to Owen County-one of the few to be on time. Payments made after?May 10th?are subject to a ten percent penalty.

Lawrence County is awaiting approval of their tax rate. Once their rate is approved they will establish a due date for taxes. Until their rate is approved, we will continue to use 2007 pay 2008 tax amounts for all prorations.

Orange County is in the same situation as Lawrence County.

Brown County is still a year behind and holding.

I will continue to post updates as more information becomes available.

Coming Soon – Monroe County Property Taxes Bills

The amounts of Monroe County Property Taxes for the tax year 2008 payable in 2009 should be official this week. The county treasurer will mail the tax bills shortly thereafter and?the first installment of property taxes will be due Friday June 26, 2009.

We currently have access to the uncertified tax amounts and are disclosing those amounts in our title commitments.?Once the state certifies the amount we will be able to pay those taxes at closing and prorate the taxes for this year using these new amounts. (Last year an entire township’s taxes were incorrectly certified and it did lead to some problems for a few closings.)

If both the buyers and sellers wish to prorate on the uncertified amounts, we’re fine with that. We just need to have them sign our tax proration instructions reflecting that agreement.

I’ve reviewed a few files with uncertified taxes.?It appears that there’s little change from last year in the amount of the taxes on properties with valid homestead exemptions. I suspect that on other property types the news won’t be quite so good.

Once the new taxes are certified, we will obtain the new amounts for all our files going back to early March that we holding tax escrows on. We then cut checks to pay the first installment of taxes.?After we’re certain the payments have been applied correctly, which might not be for six to eight weeks, we will return any balances remaining in the escrow to the owner.

Even though tax bills are again late this year, it’s the earliest they’ve been out in quite a while. That’s good news for buyers and sellers since taxes can be paid and prorated on current information.

Sorry, the check from your bank is no longer good (enough).

Under a new Indiana law title companies will no longer be allowed to accept cashiers, corporate, or personal checks for their real estate closings after July 1, 2009. Mortgage lenders and many real estate buyers will need to wire transfer their funds to the title company or closing agent in most situations.

The law?(House Bill 1374) requires that?any party to a closing that must deposit more than $10,000 must wire transfer those funds into the closing agent’s escrow account. Certified or cashier’s checks or cash may accepted from any single party that needs to deposit less than $10,000. Corporate checks under $10,000 from Realtor’s? trust accounts for earnest money will be acceptable in most situations.

I’ve been asked why such a law is necessary. One reason is that we live in a financial environment now where the previously unthinkable is happening all too often. Another reason is to ensure that funds from one closing are not used to cover checks written for another closing.

Title companies use the same bank account for many closings. If we accept a bad check–yes, lenders have gone out of business in the middle of our transactions–it may be a week or more before the bank knows and then notifies us. ?The reversal of the deposit may not result in a shortage in our checking account until days or weeks later because we are constantly making deposits from other closings. When the float disappears and if we don’t immediately make up the shortage, checks from completely unrelated transactions will bounce. When checks from a closing bounce, the resulting carnage is not pretty.?The law helps to protect all parties to the real estate closing from the effects of this happening.

The fact that cashier’s checks are no longer considered good enough has more to do with bank rules about collected funds rather than the risk that a cashier’s check will be dishonored. When you deposit a check in a bank–even a cashier’s check–the bank will not let you draw against that deposit until the bank considers that the check is collected funds (meaning that in the bank’s opinion the likelihood of the check bouncing is remote). Wire transfers are generally considered collected immediately upon receipt. Some banks treat cashier’s checks as collected funds the next day; other banks take longer. Personal and corporate checks may not be treated as collected for more than a week. If the collected funds balance in an account is not sufficient to cover all the checks presented for payment that day, the bank may withhold clearing those checks or may even bounce them. Every bank has some leeway in determining when funds can be considered collected. Characteristics of the check, the check maker and the bank that it is drawn on are part of the usual criteria.

Lenders who currently fund their loans with wire transfers should like the new law. Your competitors who insisted on providing corporate checks, drafts and forms of positive pay, held a competitive advantage over you. Their costs of funds were lower since they didn’t have to actually let go of the loan proceeds until their check was presented for payment several days after the closing.

The essence of the new law is that title companies are no longer allowed to disburse closings until they are certain that the specific funds associated with that closing are collected.?Everyone should feel more comfortable about that.

There are some practical and logistical implications of the new law, especially with daisy chain closings. I’ll be posting about them in the coming week so check back.

Yes, I’ve been a little absent lately with blog posts. Business is crazy busy and so is my non-business life. But I’ve restructured my time and will be posting again on a regular basis. Thanks to all my friends who’ve been asking where I was. Well, I’m back.