Q: Does the Georgia “Good Funds” Law Apply to Cash Closings?
This is a follow-up to yesterday’s post regarding the Georgia “Good Funds” Law. The good funds law essentially requires wired funds at closing since a check would not constitute collected funds in the attorney’s escrow account at the time of closing. The Georgia good funds law in specific applies “only to transactions involving purchase money loans made by a lender, or refinance loans made by the current or a new lender, which loans will be secured by deeds to secure debt or mortgages on real estate within the State of Georgia containing not more than four residential dwelling units, whether or not such deeds to secure debt or mortgages have a first-priority status” (GA. Code § 44-14-13(10)(b)). This begs the question as to whether parties may use bank checks (certified, cashiers or teller checks) in closings not involving loans, such as all cash closings?
The short answer is that in lender funded or all cash closings, the parties must have collected funds in the attorney’s escrow account at the time of closing. The law just recited was enacted to reverse a prior Georgia law which allowed lenders to fund their closings by check drafts, without waiting for the funds to clear. Sales contracts generally require performance at the time of closing. However, a check in hand is not cash on deposit in the attorney’s escrow account. In fact, after a check is deposited, the funds may not actually be released into an account until up to five (5) business days after the deposit is made. In practical terms, this can be ten (10) calendar days or longer. When an attorney writes a check at closing, the funds must be available for withdrawal. This means that parties in cash or loan closings must wire funds for other than nominal amounts.
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GA. Code § 44-14-13
(a) As used in this Code section, the term:
(1) "Borrower" means the maker of the promissory note evidencing the loan to be delivered at the loan closing.
(2) "Collected funds" means funds deposited, finally settled, and credited to the settlement agent's escrow account.
(3) "Disbursement of settlement proceeds" means the payment of all proceeds of the transaction by the settlement agent to the persons entitled thereto.
(4) "Lender" means any person or entity regularly engaged in making loans secured by mortgages or deeds to secure debt on real estate.
(5) "Loan closing" means the time agreed upon by the borrower and the lender when the execution and delivery of loan documents by the borrower occurs.
(6) "Loan documents" means the note evidencing the debt due to the lender, the deed to secure debt or mortgage securing the debt due to the lender, and any other documents required by the lender to be executed by the borrower as part of the transaction.
(7) "Loan funds" means the gross or net proceeds of the loan to be disbursed by or on behalf of the lender at the loan closing.
(8) "Party" or "parties" means the seller, purchaser, borrower, lender, and settlement agent, as applicable to the subject transaction.
(9) "Settlement" means the time when the settlement agent has received the duly executed deed to secure debt and other loan documents and funds required to carry out the terms of the contracts between the parties.
(10) "Settlement agent" means the lender or an active member of the State Bar of Georgia responsible for conducting the settlement and disbursement of the settlement proceeds.(b) This Code section shall apply only to transactions involving purchase money loans made by a lender, or refinance loans made by the current or a new lender, which loans will be secured by deeds to secure debt or mortgages on real estate within the State of Georgia containing not more than four residential dwelling units, whether or not such deeds to secure debt or mortgages have a first-priority status.
(c) Except as otherwise provided in this Code section, a settlement agent shall not cause a disbursement of settlement proceeds unless such settlement proceeds are collected funds. A settlement agent may disburse settlement proceeds from its escrow account after receipt of any of the following negotiable instruments even though the same are not collected funds:
(1) A cashier's check, as defined in subsection (g) of Code Section 11-3-104, from a federally insured bank, savings bank, savings and loan association, or credit union and issued by a lender for a closing or loan transaction, provided that such funds are immediately available and cannot be dishonored or refused when negotiated or presented for payment;
(2) A check drawn on the escrow account of an attorney licensed to practice law in the State of Georgia or on the escrow account of a real estate broker licensed under Chapter 40 of Title 43, if the settlement agent has reasonable and prudent grounds to believe that the check will constitute collected funds in the settlement agent's escrow account within a reasonable period;
(3) A check issued by the United States of America or any agency thereof or the State of Georgia or any agency or political subdivision, as such term is defined in Code Section 50-15-1, of the State of Georgia; or
(4) A check or checks in an aggregate amount not exceeding $5,000.00 per loan closing.
For purposes of this Code section, the instruments described in paragraphs (1) through (4) of this subsection are negotiable instruments if they are negotiable in accordance with the provisions of Code Section 11-3-104.
(d) The lender shall at or before the loan closing deliver loan funds to the settlement agent in the form of collected funds or in the form of a negotiable instrument described in subsection (c) of this Code section; provided, however, that in the case of refinancing, or any other loan where a right of rescission applies, the lender shall, prior to the disbursement of the settlement proceeds and no later than 11:00 A.M. eastern standard time or eastern daylight time, whichever is applicable, of the next business day following the expiration of the rescission period required under the federal Truth in Lending Act (15 U.S.C. Section 1601, et seq.), deliver loan funds to the settlement agent in one or more of the forms set forth in this Code section.
(e) Any party violating this Code section shall be liable to any other party suffering a loss due to such violation for such other party's actual damages plus reasonable attorneys' fees. In addition, any party violating this Code section shall pay to the party suffering the loss an amount of money equal to $1,000.00 or double the amount of interest payable on the loan for the first 60 days after the loan closing, whichever is greater.
(f) Any individual, corporation, partnership, or other entity conducting the settlement and disbursement of loan funds, when he, she, or it is not the settlement agent, shall be guilty of a misdemeanor.
(g) Nothing contained in this Code section shall prevent a real estate broker or real estate salesperson from exercising the rights and providing the duties and services specified by Chapter 40 of Title 43.
HISTORY: Code 1981, § 44-14-13, enacted by Ga. L. 1990, p. 1653, § 1; Ga. L. 2008, p. 796, § 1/SB 355; Ga. L. 2012, p. 1099, § 15/SB 365.
GA. Code 44-14-13 Definitions; limitations (Georgia Code (2013 Edition))