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Why am I required to wire the proceeds owed at closing?

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wireI recently bought a house and the closing attorney is insisting that we wire the amount we owe at closing, even though the contract says that we can provide a cashier’s check. Is this really necessary and why? What is the big deal?

Over the last several years, there have been tremendous changes in the financial markets, including banking regulations, increased lender scrutiny regarding the credit of applicants for mortgage loans, and the list goes on. Nationwide and, more recently, locally, most closing attorneys and settlement agents, including the writer, have gone to a “wire only” policy for closing funds required at closing from a Purchaser. The reasons are very simple and make a great deal of sense when looked at from the closing attorney’s perspective, the perspective of the insuring title insurance company, and the perspective of his bank.

There has been a spike in fraudulent cashier’s checks and money orders presented by Purchasers at closing, greatly increasing the risk to the closing attorney/settlement agents. By accepting your closing, the closing attorney/settlement agent agrees to abide by the terms of your contract, which might allow for a cashier’s check, but your contract also will speak to “collected funds” or “good funds” being necessary to complete the closing. Since most banks, including the writer’s, hold a cashier’s check for five (5) to ten (10) business days before considering the funds “collected funds” or “good funds,” the funds may not be paid from the account by the closing attorney until the funds have “cleared.” If proper banking and Bar Association rules are followed, “funding” of the transaction or the “cutting of checks” would be delayed until “good funds” are verified by the attorney’s bank. Additionally and unbeknownst to most people, a “stop payment order” may also be placed on a cashier’s check. Most lenders also require that payoffs be wired to pay off the Seller’s loan at closing. The days of cutting a check and mailing it, overnight or otherwise, to a Seller’s lender are over. Further, most title insurance companies, which underwrite the transaction being closed, specifically require that the closing attorney/settlement agent have “good funds” before any distributions are allowed. Therefore, if the closing funds are not wired, the settlement attorney/agent will be unable, ethically, to wire the funds to pay off the Seller’s loan at closing. Because it is unrealistic to expect parties (especially since the Seller’s loan will have per diem interest) to wait five (5) to ten (10) days for the cashier’s or certified check to “clear” the attorney’s trust account, the only practical solution is to simply send a wire. Remember that your closing attorney/settlement agent is asking for the wire to protect all of the parties involved in the transaction from the potential disaster caused by a fraudulent cashier’s check or a post-closing “stop payment,” so it’s best for you to go with the flow and follow the instructions of your closing attorney/settlement agent. Most national lenders are also now instructing their employees to advise their borrowers of the requirement that closing funds should be wired. Many lenders are even now REQUIRING that their customer wire the funds required at closing.

This blog is written for information purposes only and is not to be construed as “legal advice” or a “contract to provide legal services.” The reader is always advised to seek the advice of an attorney.

From our offices in Decatur, Alabama, we represent clients in Morgan, Madison, Cullman, Lawrence, and Limestone Counties, including the communities of Decatur, Huntsville, Madison, Hartselle, Cullman, and Athens.

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