When preparing to close escrow, clients will regularly ask if it is acceptable to bring closing funds via personal check. When posed with this question, Escrow Agents should always respond that we’re unable to accept a personal check for closing, as GOOD FUNDS are required. One of the core functions of an Escrow company includes being a depository for funds required to comply with the instructions from the principals of the escrow. Thus, it is critical to obtain GOOD FUNDS. Good funds means that the check has been paid by the bank on which it is drawn and the funds are actually available for use as payment for closing costs, commissions and proceeds to the seller.
In California, the various laws specifically regulating Escrow Agents do not define holding or clearing times for various types of instruments. There are reasons why a deposit, including by Cashier’s Checks and ACH, may not actually pay within the timelines listed in the Federal Regulations. Escrow Agents are also occasionally the victims of fraudulent, forged or stop paid cashier’s checks.
Since Bank privacy policies in place today make it difficult to confirm a check has been paid; wired funds are the best source of ensuring you have GOOD FUNDS for closing because the funds are immediately clear. Wires are not without drawbacks, but until a better system comes along, an Escrow Agent and its clients are safest with a Wire Transfer for any final closing funds. By failing to follow these procedures, an escrow company is likely to have to advance funds for any dishonored deposit if the escrow has already closed; or face regulatory action, civil action, or both.
