Recently the real estate industry has experienced an epidemic of lenders who are unable to fund loans. We have seen dozens of instances in which settlement agents have disbursed funds in reliance upon a lender’s check or wire, only to have that check or wire be dishonored. The shortage created in the settlement agent’s escrow account creates escrow liability for the settlement agent.
The time has come to re-evaluate practices relative to accepting checks and wires from lenders. With reports that some large, national lenders are experiencing difficulty in finding adequate sources of funds for their mortgage origination business, we believe it is important for settlement agents to re-evaluate the practice of disbursing funds prior to said funds being “finally credited” to the escrow account. Our concern with this practice includes reliance upon a check or wire from any lender, regardless of the size and apparent financial strength of the lender.
WIRE TRANSFERS
Many settlement agents believe that it is always safe to disburse against funds that are wire transferred to the escrow account. Caution must be exercised to ensure that wired funds are actually credited to the settlement agent’s account prior to disbursing. Please note that receipt of the Fed Reference number does not ensure the funds have been received and finally credited to the account. This number merely confirms to the settlement agent that the sender has completed the wire transmission. If the wire transmission is received after the receiving bank’s incoming wire cut-off time, the receiving bank will credit the account the next business morning. Also, if the registration on the wire does not match the account registration or if the account number is invalid, the receiving bank will reject the wire. An intervening solvency issue with the funding bank could lead to the dishonor of the wire transfer. Therefore, settlement agents must confirm that wired funds have been finally credited to the account prior to disbursing.
If you have any questions, or need help with your title insurance needs, please do not hesitate to contact Paxin Closing and Escrow, LLC, at 866-752-4445.
