On April 6, 2017, Ohio’s new Good Funds Law went into effect, which contains new consumer protections in real estate transactions involving the sale, purchase, or refinance of residential real estate. The law amends Ohio Revised Code Section 1349.21. The law was passed in an attempt to combat and thwart fraudulent activities such as money laundering, associated with the aforementioned real estate transactions. The basic tenet of the new law is to eliminate the use of checks (personal or certified) and instead require, with certain exceptions, the transfer of monies by federal wire.
As part of the Good Funds Law, title agents are now required to follow stricter controls in the handling and closing of escrow transactions. While the law is specifically designed for residential real estate transactions, many title agencies have elected to apply the same rules to commercial real estate transactions. Under the new law, all payments involving more than $1,000 must be transferred to the title agency’s escrow account via wire transfer. It should be noted the $1,000 threshold is an aggregate amount. Accordingly, such threshold cannot be circumvented by issuing multiple checks or utilizing a multitude of different form of check (i.e. personal check, certified check, cashier’s check, etc.). The law applies to buyers, sellers and lenders.
Two notable exceptions to the wire transfer requirement relate to: (i) if the funds are initiated by the United States, State of Ohio (including an agency thereof) or political subdivision, such funds may be in the form of a check or an automated clearing house (ACH) transaction; and (ii) if funds are drawn from a real estate broker’s trust account, a business check, in any amount, may be utilized.
Caution should still be taken as a possibility exists for wire fraud during funds’ transfer processing. Email communication with incorrect (fraudulent) wiring instructions are often a method utilized by those committing fraudulent acts. To help protect against such risks, having wiring instructions provided in writing and then sent by personal delivery, U.S. mail, or even facsimile transmission help ensure the authenticity of the information being provided. Taking the additional step of verifying the information and such written instructions also provides an additional check-and-balance to the process.
As this law has gone into effect, some of our clients have already experienced this additional closing requirement. As both the initiation and the receipt of a wire transfer can takes longer than the traditional method of having a cashier’s check or other certified funds issued, parties to real estate transactions should be sensitive to the additional time involved in completing the necessary steps to close real estate transactions.
The above is only a brief summary of the law and should you have any specific questions, please contact David H. Montgomery at Pickrel, Schaeffer and Ebeling via email at email@example.com or by calling 937-223-1130.