Commonly asked questions about Ohio’s new ‘Good Funds’ law

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By Peg Ritenour, OAR Vice President of Legal Services/Administration

In 1996, Ohio’s “Good Funds” law went into effect. This law defines the type of funds that can be accepted by an escrow or closing agent in a residential real estate transaction to assure that the funds are truly in the possession of the closing or escrow agent before being disbursed.

The law has worked well for the last 20 years, but recent problems with fraudulent checks, including money orders and certified checks, prompted the Ohio Land Title Association to initiate amendments to the “good funds” law to further restrict the types of funds that can be accepted. Such language was included as an amendment to other legislation on the last day the Ohio Legislature was in session at the end of 2016. The changes become effective on April 6.

Under the new legislation the following will now be considered acceptable funds for your real estate closings:

  • Checks drawn on a real estate brokerage trust account. There is no dollar limit on brokerage checks;
  • Government checks issued by the U.S., the state of Ohio, or an agency, instrumentality or political subdivision of the U.S. or State of Ohio, or funds transferred electronically by such entities via the automated clearing house (ACH) system;
  • Cash, personal or business checks, certified checks, money orders or official checks drawn on an existing account at a federally insured bank, savings and loan, credit union or savings bank that do not exceed an aggregate amount of $1,000;
  • Electronically transferred funds via the real time gross settlement system provided by the Federal Reserve banks.

So what this means is that your buyer (or a seller who has to provide funds to close) will no longer be able to bring cash, a personal or cashier’s check or money order to a closing if the aggregate amount exceeds $1,000. Instead, such funds will have to be wired.

This has raised many concerns among REALTORS about how this may impact their clients and the closing process, especially back to back closings. Below are answers to some of the questions that REALTORS have asked about the new law.

Q. When does this become effective?

The new provisions will become effective on April 6.

Q. Who pushed for this legislation and why?

The change to the “good funds” law was initiated by the Ohio Land Title Association and was supported by lenders and credit unions. These amendments were sought as a result of numerous instances of escrow agents receiving fraudulent money orders and cashier’s checks. According to OLTA, this legislation is designed to protect consumers from fraud, preserve the integrity of funds that are held and disbursed in a real estate transaction, and to create efficiency for service providers.

Q. I keep hearing about instances of cyber fraud taking place in real estate closings, resulting in parties losing thousands of dollars. Isn’t this expanded use of money wires going to expose the public to greater risk?

You are correct that cyber fraud is occurring here in Ohio and across the country. However these problems are not caused because the wiring process itself is untrustworthy. Instead, it is caused by breaches in security that allow hackers to break into emails and send phony wiring instructions re-directing funds to the hacker’s dummy account. The risk of cyber fraud can be greatly reduced by educating your clients to never wire funds based on an email without calling an independently verified phone number to confirm the instructions. Moreover, REALTORS are advised that they should not be involved in the communication of bank account or routing numbers.

Q. Does the new law apply to commercial real estate transactions?

No, it only applies to residential transactions. “Residential real property” is defined as any real property improved or to be improved with a one- to four-family dwelling.

Q. A local title company told me that they will no longer be able to accept a check drawn on my brokerage trust account. Someone else said only trust account checks under $1,000 will be accepted. Are either of these true?

No! This inaccurate information was circulated by one group and was unfortunately shared with some REALTORS and local Boards. The new law still recognizes checks drawn on a real estate brokerage as “good funds” and the $1,000 limit does not apply to brokerage trust account checks. Therefore a check drawn on your trust account in any amount will still be accepted by the escrow agent.

Q. So the requirement to wire funds applies to amounts over $1,000, correct?

The requirement to wire funds will apply if the aggregate amount of cash, personal, business, cashier, or official checks or money orders exceeds $1,000.

Q. Could a buyer bring an $800 personal check and a $900 money order to closing since they are each below the 1,000 limit?

No, because the aggregate amount of the two checks exceeds $1,000 this would not be considered “good funds” under the new provisions.

Q: A broker brings a $15,000 check drawn on his brokerage trust account to the closing. If the seller needs to bring an additional $1,000, can he bring a personal check or does the brokerage check count toward the aggregate amount?

The seller can bring a $1,000 personal check because the brokerage trust account check does not count toward the aggregate limitation of $1,000.

Q. For checks $1,000 or less, is there any type of limitation on the type of institution on which that check is drawn?

Yes. Such checks must be drawn on an existing account at a federally insured bank, savings and loan, credit union or savings bank.

Q: I understand that some lending institutions charge a fee for a wire transfer. Will I be responsible for paying that for my client?

Most lenders do charge a fee for a wire transfer that may range from $15-$30. The party responsible for paying that fee is the person obtaining the wire transfer. As the agent or broker, you have no legal obligation to pay that fee for your client. It is recommended that you advise your client to discuss such fees with their lender.

Q. Why was the $1,000 limit placed on cash?

This was based on concerns about money laundering in real estate transactions.

Q. I work with some clients — the Amish, for example — who strictly deal with cash. How will they be able to provide funds for the transaction?

Such persons may have to open a bank account or figure out another way to have the funds placed in an account at a lending institution that will be able to wire funds exceeding $1,000. For example, they could provide the cash for deposit in their attorney’s account and then have the attorney wire the funds to the title company. If you believe your client plans on using cash, it is important to inform them about this change in the law early in the transaction so that they can take the necessary steps to comply.

Q. Since real estate brokerage trust account checks are still acceptable, could I accept the cash from my client, deposit it in my brokerage trust account and then bring a trust account check to the closing?

Yes. However under federal law, cash over $10,000 must be reported to the IRS on form 8300, so it will be necessary for your brokerage to file this form if you accept cash over $10,000. I would also recommend that this be discussed with your brokerage’s attorney before doing this because of money laundering concerns.

As to accepting a check from your client, you would need to make sure that this check has cleared and the funds are actually in your trust account before you provide a check to the escrow or closing agent.

Q. Am I required to add any language to my purchase contract as a result of this change?

No, nothing in the legislation requires you to add any language to your purchase contract, although you may wish to do so to put the parties on notice that a wire transfer will be required for any funds over $1,000. Such language could state something to this effect:

“Ohio law requires that closing funds over $1,000 be electronically transferred to the closing/escrow agent. Buyer is advised to consult their lender and closing/escrow agent for wiring requirements to assure that the funds are received in a timely manner.”

Q. Instead of changing my purchase contract could I give my clients a separate form that notifies them about the need to wire funds?

Yes, while not required by law, this is another option to make sure that you clients are aware of the wiring requirements. I would suggest that you include a place for your client to sign such a form so that you have documentation that it was provided.

Q. Will closings be delayed because funds have to be wired?

Not necessarily. Wiring funds is generally considered to be a quick and efficient method for lenders to electronically transfer funds to one another via the real time gross settlement system provided by the Federal Reserve System. As long as the parties discuss the wiring requirements with the escrow agent and their lender prior to closing and take the necessary steps to assure that the funds are wired in advance, there shouldn’t be a problem.

Q. I have heard that wire transfers made in the afternoon may not go through until the next day. Is that true?

That may be true. Each lender determines its own cut off time for accepting wired funds. Therefore, it is crucial for your clients to discuss this with their lender to make arrangements to assure that the necessary funds are wired in a timely manner to avoid delays.

Q. Is there a limit on how much money that a lender can wire at one time?

I have not heard of that, but clients may want to check with their lender to make sure the funds don’t have to be wired in increments.

Q. I have been told that wiring funds on Friday for a Friday closing should be avoided in case there is a problem.

There is always a risk that some type of problem may occur with a Friday closing that could delay it until the next week and a wire transfer delay could be one of those issues. However, as long as the lenders’ cut off time for wire transfers are met, this shouldn’t be a problem. Again, early discussions with the lenders and planning will be crucial to avoid closing delays.

Q. My seller is having back-to-back closings on the same day. The closings are being held at different title companies. Will the seller be able to endorse over the title company’s check for the proceeds of his sale to the title company closing on the purchase of his new house in the afternoon?

No, not if the check is for more than $1,000. That is because checks drawn on the title company’s account that are over that amount are not considered to be “good funds” under the new law. To facilitate back to back closings, it will be necessary for the title company who closed the sale of your seller’s home to wire the funds to the title company handling the closing on the purchase of his new home. To assure that the lenders’ cut off times are met, it will be important to establish what those times are and to schedule the closings accordingly.

Q. What if the same title company is handling both closings?

That will certainly make things much easier. In that case the seller can instruct the tittle company to apply his proceeds to the second transaction.

Q. I represent a seller who is going to have back-to-back closings. In the event that there is a wiring problem that delays the second closing, should the purchase contract provide for the seller to retain possession of the house he is selling for a few days after closing?

As stated above, there are a myriad of issues that can occur with these types of tight closings situation that may make such an extended possession desirable for a seller. The possession date in the contract is certainly something that should always be discussed with the seller.

Q. Is this new requirement to wire funds an attempt to force the parties to use escrow closings instead of “round table” closings?

While escrow closings are the “norm” in northeast Ohio as they are in many parts of the country, they are not as common in other parts of our state. I have heard nothing to lead me to believe that the intent of this legislation was to push parties to close in escrow.

Q. Do these new provisions regarding wiring funds apply when the government is the buyer?

Checks from the United States government, the state of Ohio or from any agency, instrumentality or political subdivision of those are considered acceptable, regardless of the amount. These entities can also initiate the transfer of funds via an electronic ACH (automated clearinghouse system).

Q. Can a buyer use the ACH system instead of wiring funds?

No. Although initially it was believed that the parties could utilize this method to electronically transfer funds, a closer reading of the legislation limits use of this system to only the government entities mentioned above.

In conclusion, just like the TRID changes in 2015, these amendments to Ohio’s “Good Funds” law will be an adjustment for REALTORS and their clients. The key to assuring that the necessary funds are wired in a timely manner and that closings aren’t delayed is educating your clients, early communication with lenders and the title or escrow agent, and advance planning.

 

Reprinted from the Ohio REALTOR magazine (Winter/Spring 2017). Legal articles provided in the Ohio REALTOR are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Tags: legal

Homes purchase agreements across Ohio fall slightly in February

house keys and contract

By Carl Horst, OAR Director of Publications/Media Relations

The Ohio Association of REALTORS reports the number of single-family homes and condominiums put under agreement in February 2017 fell 2.9 percent from the level posted during the month a year ago.

Ohio’s February Pending Home Sales Index of 144.3, a forward-looking indicator based on contract signings, declined 2.9 percent from February 2016 (148.6). Activity in February decreased a marginal 1.2 percent from the pace of agreements reached in January 2017 (146.0). (Note: February 2016 included one additional day, as it was a leap year.)

“The outlook for the Ohio housing market remains upbeat, as a near record number of homes were put under contract in February,” said OAR President Pete Kopf. “Activity fell slightly from the best-ever results posted during the month a year ago and in January 2017.

“Ohio’s REALTOR community understands that the foundation of our marketplace is strong and able to withstand the traditional monthly ebbs and flows that occur,” Kopf added. “We look forward to continuing the momentum that has been established as we move into the traditional spring buying season.”

Compared to 2008, a historically healthy market that marked the end of five consecutive record years for existing home sales and the onset of the recession, February’s Index score of 144.3 marks a 44.3 increase.

A pending sale or a sale “under agreement” is when the buyer and seller agree on terms of the sale of a home and have a signed purchase and sale agreement, but have yet to close and be recorded as such.  Refer to the following report to view the pending home sales index and methods.

OAR, the largest professional trade association in the state with more than 30,000 members, is the only organization that compiles this state wide information from selected Multiple Listing Services each month. The tracking of “pending sales” provides reliable information about where the market is heading in coming months.

Tags: pending home sales, research

Ohio Market Watch: Ohio renters’ interest in buying holding steady

By Greg Stitz, OAR Director of Research

Consistent with findings from the last two years, around 60 percent of respondents to an Ohio REALTOR survey indicate they are seeing an increase in the level of interest renters are expressing toward buying. More specifically, OAR’s February housing market confidence survey shows 51 percent of respondents noticing a slight increase in interest, 7 percent noticing a substantial increase and 35 percent noticing no change in interest. Additionally, 7 percent notice a decrease.

Ohio renters interested in buying

Survey results are based on responses to a monthly survey, designed to capture the effects of the existing economic conditions and trends on the real estate industry, sent to a pool of 1,500 OAR participants. Click here to participate in future OAR Housing Confidence Surveys.

Tags: Ohio Market Watch, research

Be ready for Ohio’s new license law when it goes into effect on April 6!

HB 532 Resource concept

On April 6, Ohio House Bill 532 becomes effective. The main purpose of this legislation was to implement the recommendations of the Ohio License Structure Review Task Force that was appointed by the Ohio Real Estate Commission. In addition, HB 532 also provides a clear framework for licensees when representing more than one buyer on the same property and permits pre-licensing courses to be taken on-line.

An in-depth explanation of the key components of this legislation and how it will impact Ohio’s brokers and agents can be found at the following links:

Ohio REALTOR magazine article (Winter/Spring 2017) — House Bill 532: How Ohio’s new license law impacts real estate brokers and agents

Watch the HB 532 webinar conducted by Peg Ritenour, OAR vice president of legal services/administration

HB 532 language

New sample forms: Contemporaneous Offer Disclosure Policy and Notice of Contemporaneous Offers

Answers to some of the commonly-asked questions about the various components of the bill:

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Coaching Corner: Are you breathing?

By “Coach” Marilou Butcher Roth

Yes, I know you are breathing, otherwise you would not be reading this blog post! We as humans, however, do not completely access our full breath very often — if at all. Why do we need to be breathing differently you may ask. Well, there are a multitude of reasons with one that might catch your attention — stress relief! We need to move more oxygen through our bodies for them to work at their best. There has been tremendous research done on the subject and I was fortunate enough to work with one of my mentors, Gay Hendricks, who is an expert on this subject.

So, this week, I am going to give you written instruction on how to increase the flow of oxygen in your body. First, position yourself at the end of your seat so that your pelvis has the ability to move. You will be combining your breath with a movement of your spine as follows:

As you inhale fully through your nose, bringing the breath up all the way from your belly, allow your head to come up and your spine to arch as your pelvis rolls forward, bringing the breath all the way up into your chest. On the exhale, again through your nose, you roll your pelvis back and curl your body in towards itself, bringing the breath down from your chest into your belly. Ideally, take 4-5 counts for the inhale and 4-5 for the exhale. Try not to stop but keep the breath flowing in and out.

This breath is something you can use when you are stressed, and more importantly, you can most effectively use it in a pro-active way. I suggest tossing your feet over the side of the bed when you awaken, and engaging in conscious breathing for 2-3 minutes. This should feel good, think about allowing rather than “doing it right.” This practice sets the tone for the rest of the day, bringing energy into your body first thing!

Feel free to practice throughout the day, gauging your range of movement situationally. Many times I find myself during meetings engaging in this breathing practice in a very subtle way that is unnoticeable to those around me.

Happy breathing!!

 

Marilou Butcher Roth is the owner of The MBR Group, a coaching and training company working primarily with REALTORS who have a desire to work and live from a more inspired place. She is also the Broker/Owner of Group REALTORS in Cincinnati.

Marilou is a member of the OAR Board of Directors and past chairman of the organization’s Communications Committee. Feel free to contact Marilou to see if coaching is right for you: Marilou@mbr-group.com

 

Tags: Coaching Corner, training

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