November 03, 2013 13:14 Filed in: Closing Funds
“Moving Money”! 6 Tips to Avoid Dry Closings!
A little coaching can help your clients move funds from the piggy bank to the closing table and avoid a dry closing. Here are a few tips crafted around the most common cash related closing delays. #1 – Advise that Closing Funds Must Be Wired.
It may be helpful to advise clients to wire funds both well in advance of closing and a followup reminder a few days before closing. Georgia laws, including State Bar rules, restrict attorneys from disbursing on uncollected funds. On a practical level, this
means that firms are generally prohibited from accepting personal or cashier checks at closing, other than for nominal amounts. Even though the underlying law differs by closing scenario, this basic rule applies regardless of whether the transaction is cash or loan funded. Bottom line, wires are required.#2 – Pay Special Attention to Cash Closings.
Cash buyers may need more attention in funding preparedness. When a mortgage loan is involved, the extra layer of communication, in addition to instruction received from real estate agents and closing attorneys, helps prepare clients to wire funds for a closing. On the other hand, cash buyers have not received conditioning from a lender and may be more likely to get caught off guard by the wired funds requirement.#3 – Upside Down Sellers Must Wire, too.
Assist in getting an upside down seller’s net closing figure with instruction to wire, well in advance of closing. An “upside down” closing is similar to a short sale, except the seller brings cash to the closing, rather than shorting the loan payoff. If the seller’s worksheet is approaching the red line, it’s best to advise in advance of closing that the short amount will need to be wired to the closing attorney’s escrow account. The closing attorney should be able to assist in calculating this figure in advance of closing.#4 – Electronic Checks (ACH) Are Not Wires.
Make clear the funds transfers should be sent by FED WIRE and specifically not ACH. Online banking has blurred the fed wire distinction. Since money can be transmitted electronically in different ways, not all “wires” are wires! ACH transfers are basically electronic checks pushed from one bank account to another. This type of transfer should never be used because the process takes from three to five business days to complete and the transaction cannot be traced. Even worse, funds arrive only one time per day (after an overnight clearing). Imagine that a buyer instructs the bank to issue an ACH transfer on Monday for a Tuesday closing. On Tuesday the funds will not have arrived, and when the issue is discovered, it cannot be reversed, the funds cannot be verified and the closing may need to be rescheduled until the day the funds arrive! On the other hand, a fed wire can be dispatched and received in as little as an hour at any time throughout the day. Fed wires are traceable, too, when a true fed reference number is provided by the sending bank.#5 – Confirm Receipt of Wire with Closing Attorney.
It is important to verify receipt of wires with the closing attorney. It is possible for wire instructions to contain transcription errors, in which case the money will be returned to the sending bank, and a new wire request may
be required. These “ in limbo” situations may give the perception that the money has been sent since the amount has been deducted from the sending account and not yet credited back. Occasionally, wire requests fail when the wire is not properly authorized internally by the sending bank, which authorization is more commonly required where larger amounts are involved. In these situations, the cash appears to have left the sending bank account when in fact it never has.
For these reasons, wires should be “sent to be received” at least one day in advance of closing so any problems can be detected prior to closing. It is also advisable to obtain a copy of the wire demand request with the name and direct contact number for the sending banker, should a problem arise.#6 – Attention to Settlement Periods for Liquidation of Securities or Trust Disbursements.
If the topic comes up in conversation...
The sale of investments frequently involves a settlement period before cash proceeds become available. Investments should be liquidated enough in advance of closing to so that cash funds are available. Situations do arise where securities are not timely liquidated which results in postponed funding or closing.
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