Ohio Good Funds Law FAQ
+ Does the law only regulate funds collected from the consumer (buyer/borrower/seller)?
No. This aspect of the law has not changed, the law regulates any and all funds collected by an escrow or closing agent in connection with an escrow transaction involving residential real property. So, it also regulates the funds collected from a lender as well as from a consumer.
+ Is it permissible to use cash over $1,000 if it is deposited in the escrow account of the closing agent in advance of closing?
No. The law only permits cash if it is in the amount of $1,000 or less AND it is physically received by the escrow agent prior to disbursement AND intended to be deposited no later than the next banking day after the date of disbursement.
+ Does an “internal transfer” of funds from one account to another at the same institution qualify as “electronically transferred funds” under the law?
No. All *electronically transferred funds must be sent via the real time gross settlement system provided by the federal reserve banks (i.e. wire transfer) and must be immediately available for withdrawal and disbursement.
*Electronically transferred funds may also be sent via the automated clearing house (ACH) system only if they are initiated by the United States, State of Ohio, or by an agency, instrumentality or political subdivision of the United States or the State of Ohio.
+ If the buyer needs to bring $1,200 to close, is it acceptable if they bring a $1,000 cashier’s check and $200 in cash?
No. Cash, personal checks, business checks (other than those drawn on a real estate broker’s trust
account), certified checks, cashier’s checks, official checks, or money orders must be in an aggregate amount
not exceeding $1,000. Any checks or money orders must also be drawn on a federally insured bank, savings
bank, savings and loan, or credit union.
+ If the buyer has given the real estate broker $2,000 in earnest money, and the broker brings these funds to closing, can they be used?
Yes. As long as the broker brings these funds in the form of a business check drawn on the broker’s specialor trust bank account (as defined under ORC §4735.18(A)(26)) these funds can be presented at closing. There is no limit on the amount of a check from the broker’s account.
+ Can an escrow or closing agent accept a cashier’s or certified check over $1,000 if it is deposited in time to “clear” the bank before disbursement?
Due to changes in the Ohio Good Funds Law, effective April 6, 2017, Settlement Agencies can no longer accept checks for Residential Real Estate transactions.
All funds over $1,000 must be sent by wire transfer directly to the Settlement Agent prior to closing.
The only allowed exception is a check drawn on a Real Estate Company’s Trust Account (i.e. earnest money).
+ If the buyer needs to bring $1,500 to closing and has given the real estate broker $1,000 in earnest money, can the buyer use the earnest money and bring the difference in the form of a personal check?
Yes. As long as the broker draws the $1,000 on the broker’s special or trust account, the consumer can
bring the difference in the form of a personal check. The broker’s trust account check does not count toward
the aggregate limitation of $1,000 for cash, personal checks, business checks, certified checks, cashier’s checks,
official checks or money orders.
+ Is the law only applicable to residential transactions?
Yes. This aspect of the law has not changed. The law only applies to residential real property transactions which are defined as any real property improved or to be improved with a one-to four-family dwelling.
+ If all parties to a residential real property transaction agree and instruct that other forms of funds are acceptable in that transaction, can the escrow or closing agent follow this separate instruction?
No. The terms of the law must be strictly followed and does not permit the consumer, lender, or escrow or closing agent to alter the types of acceptable funds in a residential real property transaction.
+ Is a check from another title company for greater than $1,000.00 is exempt from the rule. In other words, can a title company which takes seller’s proceeds for seller to buy new send those funds by check to the new title company. In other words, are title company to title company checks exempt regardless of the amount of the check.
The answer was no, we came to the conclusion that the statute is clear that title company checks are not exempt from the rule.
+ Does it apply to refinances?
Yes. It applies to all residential transactions.
+ Does it apply to cash deals?
Yes. It applies to all residential transactions.
+ What about a bank funding into a bank account? A situation with a lender like Union Savings Bank that funds their refinances into the Escrow Account of the Title Agency that is an IOTA Account set up at the same bank.
The lender will not be able to do an ACH into your account. They will have to send the funding by wire via the real-time gross settlement system provided by the Federal Reserve banks, as outlined in the code.
+ With the increase in wire fraud, doesn’t this make it riskier for the consumer?
If the proper procedures are put into place to make sure that any wire instructions are provided in person or
verified by the parties prior to being sent, the risk of not having funds available for disbursement or being told
they did not clear, post-closing, stop the consumer from being harmed. Fraudulent Certified Checks and
Cashiers Check pose a greater risk to the consumer than a wire.
+ Bank branches set limits on the amounts that can be wired from a consumer account.
It seems like mobile banking limits the amount that can be wired from an account but not an actual branch
visit in order to initiate the wire, although this may vary by bank. We have also instructed the agents to let
their customers know when the order is opened, that the money needed from all parties will need to be in the
form of a wire for any amount over $1,000, so they need to check with their bank to see what that banks
policy is on sending wires. If they will only be able to send increments of the total each day, they will need to
start the process early in order to have the full amount of any funds needed on the day of disbursement.
+ Is the law applicable to only residential transactions?
Yes.
+ Does the new law apply to escrow funds pertaining to out of state transactions?
If the money for this transaction will be received and disbursed from the Ohio IOTA account, then it will have to follow this law. The only exception to this would be for a Commercial transaction, as this does not apply to commercial deals.
+ Does the new law apply to escrow funds pertaining to out of state transactions?
If the money for this transaction will be received and disbursed from the Ohio IOTA account, then it will have to follow this law. The only exception to this would be for a Commercial transaction, as this does not apply to commercial deals.
+ Does the statute totally prohibit the taking of all but the enumerated checks or can we take checks as long as no disbursement is made from the escrow account until that check has cleared, in other words, if I get an earnest money deposit of $10,000.00 in check form but my transaction is not closing for 60 days, and there will be no disbursement on that file for 60 days can I accept that check?
Unless the funds are for Earnest Money and those funds were sent to us from the Real Estate Broker from the Real Estate Brokers Trust account, all deposits will need to be in the form of a wire. The above scenario is most likely to happen in a commercial transaction though, which would not be covered by this rule.
+ How does this affect “back-to-back” closings in round-table areas?
Back-to-back closings currently come with many challenges and the change to the Good funds Law will not meaningfully change the structure. For many reasons (title defects, underwriting issues with new loan, slow delivery of documents, delay in delivery of remotely-signed documents, delay in receipt of lender’s funds on day of close, etc.), it can be difficult to synchronize two closings to happen within a few hours on the same day. Such a structure is discouraged because it can lead to additional complications for a seller (soon to be buyer) when a variable on the first transaction causes delay in closing and/or disbursement and impacts their ability to close on the second transaction. For various reasons, many title companies already require that the funds from the first closing be wired for the second closing. For all residential transactions, this will now be required (unless such proceeds are $1,000 or less). Title professionals have already been discussing ways to efficiently verify and securely wire funds from one company to another and closings should be scheduled to allow reasonable time for the funds to be wired from one company to the next.
Frequently Asked Questions
+ What is Title?
Title is a combination of all the elements that constitute a legal right to own, possess, use, control, enjoy and dispose of Real Estate or a right or interest therein.
+ What is Title Insurance?
Title insurance protects Real Estate Owners and Lenders against any property loss or damage they might experience due to liens, encumbrances or defects in the Title to the property. Each Title Insurance Policy is subject to specific terms, conditions and exclusions.
+ What Are The Different Types Of Title Insurance?
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Your Lender likely will require you to purchase a Lender's Policy. This policy only insures that the financial institution has a valid, enforceable lien on the property. It does not protect you.
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An Owner's Policy is designed to protect you from title defects that existed prior to you purchasing your home. Owner’s Title Insurance protects you against what you don’t know. It helps take the risk out of buying property whose legal history is long and may not be completely known to you. The so-called “hidden risks” covered by such a policy are not common, but they do exist. If your property’s ownership history carries such risks, you could lose the property and the money you paid for it. It also covers the full cost of any legal defense of your title.
+ What does a Lender's Policy cover?
The Lender's Policy protects the Lender's interest in the property for the amount of the mortgage loan. The Mortgage Company has a Loan Policy to protect its interest in the money it lent you.
Warning: The loan policy does not protect YOU!
+ The Lender already requires Title Insurance, why do I need Owner’s Title Insurance?
The Lender's Policy, only insures that the financial institution has a valid, enforceable lien on the property. Most lenders require this type of insurance, and typically require the borrower to pay
for it. If a valid title claim was paid out to your Mortgage Company, the Note would then be assigned to the Underwriter. The Underwriter would then collect payments from you, as the borrower. An Owner's Policy on the other hand is designed to protect you from title defects that existed prior to the issue date of your policy.
+ Why do you need Owner’s Title Insurance?
Protecting your Home Investment
A home is usually the largest single investment any of us will ever make. When you purchase a home, you will purchase several types of insurance coverage to protect your home and personal property. Homeowners Insurance protects against loss from fire, theft or wind damage. Flood Insurance protects against rising water. And a unique coverage known as Title Insurance protects against hidden title hazards that may threaten your financial investment in your home. When purchasing a home, instead of purchasing the actual building or land, you are really purchasing the Title to the property – the right to occupy and use the space. That Title may be limited by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring financial loss. Title Insurance protects against these types of title hazards.
Owner’s Title insurance is a means of protecting yourself from financial loss in the event that problems develop regarding the rights to ownership of your property. There may be hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, Title Insurance pays the cost of defending against any covered claim.
+ What can make a Title defective?
Any number of problems that remain undisclosed after even the most meticulous search of public records can make a title defective. These hidden "defects" are dangerous, because you may not learn of them for many years. These hidden defects can force you to spend substantial sums of money on a legal defense, which can still result in the loss of your property.
+ What does an Owner's Policy cover?
Owner’s Title Insurance protects against claims from defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the insurance policy.
An owner's policy protects the home buyer's interest in the property against such hidden hazards as:
• Mistakes in recording of legal documents
• Forged deeds, releases, or wills
• Undisclosed or missing heirs, including spouses
• Deeds by persons of unsound mind
• Deeds by minors
• Deeds executed under an invalid or expired power of attorney
• Liens for unpaid taxes
• Fraud
For a one-time premium paid during the closing process, your title insurer assumes responsibility for all legal expenses to defend the title to your property if it is ever challenged. For the home buyer, it is a small cost for huge peace of mind.
+ How long does Title Insurance coverage last?
Lender's Policy lasts until the mortgage is paid in full. An Owner's Policy remains in force as long as you or your heirs have an interest in the property. If challenges to title arise after the property has passed to your heirs, the title insurance company would defend the title for them as it would for you.
+ Are there exceptions to Title Insurance?
Yes, certain exceptions from coverage are a standard practice, but you should be aware of which items are exempted and therefore not covered. Owner's Policies usually contain a list of some of the following standard exceptions:
• Boundary line disputes
• Easements or claims of easements not shown in the public records
• Taxes or special assessments left off the public record
• Claims of people who turn out to be living in the house ( such as a prior owner's tenants) if their being there isn't a matter of public record
• Unrecorded mechanic's liens
• Mineral and/or water rights
You have the option of paying an additional fee to obtain "Extended Coverage" for any items you want included in your policy. Your Title Agent can tell you which endorsements are available. Other exceptions which are generally excluded from coverage include zoning, environmental protection laws, matters arising after the effective date of the policy, and matters created, suffered, or assumed by the insured. Some other exceptions could be subdivision and building codes, and matters known to the insured, but not shown on the public records and not disclosed to the insurer.
Go over your Title Policy carefully to see what is included and which items are to be excluded from coverage. If you find items of concern, discuss these with your Title Agent or Closer. Any changes to the Policy of Title Insurance should be made as soon as possible and before Closing or the date of issuance.
+ Is Title Insurance required by law?
Title Insurance is not required by law, however almost all lenders will require a Lender's Title Insurance Policy as a condition of making their loan to protect their interests. In addition, buyers should always research obtaining an Owner's Title Policy to protect their equity in the property.
+ How does Title Insurance differ from other Insurance?
Insurance such as car, life, health, etc., protects against potential future events and is paid for with monthly or annual premiums. A Title Insurance Policy insures against events that occurred in the past of the real estate property and the people who owned it, for a one-time premium.
+ How does Title Insurance differ from other Insurance?
Insurance such as car, life, health, etc., protects against potential future events and is paid for with monthly or annual premiums. A Title Insurance Policy insures against events that occurred in the past of the real estate property and the people who owned it, for a one-time premium.
+ What items are needed before or at closing?
You will want to have these items complete or in hand when you come to the closing:
Buyer:
• Wire transfer for the amount required on your Closing Disclosure to be sent to the Settlement Agency the day before closing.
• Homeowner’s Insurance DEC Page & Paid Receipt (if not already given to Lender)
• Non-Expired Government Issued Photo ID (passport, driver's license, or state-issued identification card)
• Any Lender requested item (paystubs, letter of explanation, etc.)
Seller:
• Non-Expired Government Issued ID (passport, driver's license, or state-issued identification card)
+ What is escrow?
Escrow refers to the process in which the funds of a transaction (such as the sale of a house) are held by a third party, often the title company or an attorney in the case of real estate, pending the fulfillment of the transaction.
+ Who records the Deed to the property?
The Title Company will handle the recording of all necessary documents executed at the closing.
+ When do I receive a copy of the Deed to the property?
Once the title company receives the original recorded Deed back from the County Recorder’s Office, it will be mailed to the Homeowner.
+ What is a 1031 exchange?
A 1031 Exchange refers to legislation that allows an investor to sell a property, reinvest the proceeds in a new property and, as such, defer all capital gain taxes.
+ How can I better understand the terminology used in the home-buying and selling processes?
Visit the Real Estate Dictionary to learn the terminology you'll need to know before buying or selling a home.