Changes in the Good Funds Law
Effective September 29, 2017!
By Lorie Garland, Ohio REALTORS Assistant Vice President of Legal Services
Ohio’s Good Funds Law defines the type of funds that can be accepted by an escrow or closing agent in a residential real estate transaction to ensure that the funds are actually in the possession of the closing or escrow agent prior to disbursement. Twenty years after enactment, changes were made to the Good Funds Law on April 6, 2017. Concerns with some of those changes prompted additional changes to the law which are included in Ohio’s Budget Bill, HB 49 that becomes effective Sept.29.
The April changes limited acceptable funds for a residential transaction to the following:
Checks drawn on a real estate brokerage trust account. There is no dollar limit on brokerage checks;
Cash, personal or business checks, certified checks, cashier’s checks, official checks or money orders 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;
Government checks issued by the U.S., the State of Ohio, or an agency, instrumentality or political subdivision of the U.S. or the State of Ohio, or funds transferred electronically by such entities via the automated clearing house (ACH) system;
Electronically transferred funds via the real time gross settlement system provided by the Federal Reserve Banks.
The April changes require a buyer (or a seller who has to provide funds to close) to wire closing funds. The wiring process is well established and a safe and efficient means to transfer closing funds, cyber fraud notwithstanding. However, wiring funds may require a wiring fee and additional planning to make sure the funds are available by closing, especially for back to back closings.
To lessen the number of transactions requiring wiring, HB 49 increases the $1000 limitation to $10,000. When effective on Sept. 29 the law permits an escrow or closing agent to accept cash, personal or business checks, certified checks, cashier’s checks, official checks or money orders 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 $10,000.
Another concern with the Good Funds Law is the requirement that electronically transferred funds be transferred via the real time gross settlement system provided by the Federal Reserve Banks. This requirement prevents a bank from electronically transferring closing funds between accounts within their bank. For example, if a buyer’s account and the closing company’s escrow account is with the same bank, the closing funds could not be transferred internally within the bank. Instead, the funds would have to be transferred from the buyer’s account to the closing company’s escrow account via the Federal Reserve System. The same applies with back to back closings where both closing companies escrow accounts are with the same bank – the funds would have to be transferred through the Federal Reserve System, not internally within the bank. This process requires additional time and possibly a fee.
HB 49 eliminates the requirement that electronically transferred funds be transferred via the real time gross settlement system provided by the Federal Reserve System. When effective, the law permits an escrow or closing agent to accept any electronically transferred funds. Keep in mind, however, that an escrow or closing company may, by company policy, limit the type of electronic transfer of funds it accepts. For example, a title company may adopt a policy that it will only electronically transferred funds that are irrevocable. For this reason, a buyer should consult their escrow or closing agent for all wiring requirements prior to closing.
The HB 49 changes to the Good Funds Law should lessen the need, expense and timing issues related to wiring closing funds. Again these changes do not become effective until Sept. 29.