Good funds laws are meant to ensure that money funding real estate purchases and refinancing transactions is secure for disbursement at the time of closing. This protects all parties from finding they have unfunded mortgages at closing.
Good funds laws came into being after a mortgage bank firm named Abbey Financial Corp. abruptly declared bankruptcy under chapter 11 on April 1st, 1994, leaving approximately 600 customers with unfunded mortgages or double mortgages. Many of Abbey’s checks became dishonored resulting in several attorneys having shortfalls in their trust accounts.
The stipulations of good funds differ from state, but all have the same goal of there being secured funds for disbursement at the time of transaction. To do this the law dictates what sort of funds an agent can disperse into an escrow account. For example, good funds laws can dictate at what dollar amount a transaction must be a wire transaction, which is quick but can be costly over other transfer types, such as ACH transfers which cost less and can take up to several days to be completed. Laws like this limit the room for things to go wrong that can result in missing funding.
Indiana has one of the more stringent good funds law which has been in place since July 1, 2009, and has been amended since. It states:
Indiana (I.C. 27-7-3.7-et al.): Applies to Residential and Commercial Transactions
Acceptable Good Funds when $10,000 or more: wired funds that are unconditionally held by and irrevocably credited to the escrow account of the closing agent
Acceptable Good Funds when Under $10,000:
• United States currency
• Wired funds unconditionally and irrevocably credited to the escrow account of the closing agent
• Certified or cashier’s checks that are drawn on an existing account at a bank, savings and loan association, credit union, or savings bank chartered under the laws of a state or the United States
• A check drawn on the trust account of a licensed real estate broker
• A personal check not greater than $500.00
• A check issued by the state, the U.S., or a political subdivision of the state or the U.S.
• A check drawn on the escrow account of another closing agent
• A check issued by a farm credit service
• A check deposited and held in escrow account of closing agent for at least (14) calendar days before the date of closing and less than $10,000
Not accepted: Money orders and/or drafts in any amount
Be sure to keep up to date with the good funds law in your state in order to stay in compliance and keep all vested parties safe from a last-minute catastrophe.