Real life scenarios help with the topics I write about. Today’s topic happened not once, but twice in the past 10 days. While you may think today’s topic might not apply to you, read on, because even if you are a resident of Hawaii, you will want to make sure you have access to the funds needed for your transaction.

The financial world has made it easier for us consumers to place our money in accounts that just a couple of decades ago would have been scoffed at. Internet banks, online brokerage firms, and even the traditional mainland banks are the most frequent depositories we’re seeing for our clients these days. If you have assets in these types of financial institutions, do you know how to access that money? I know it sounds weird to ask, but before you give a quick yes, think about it. I’ll even give you the circumstances to base your decision on:

You are buying a new home or condo and your down payment and closing funds are deposited in a bank on the mainland. 3 days prior to closing you will need to wire those funds into escrow.

Do you know the rules your financial institution has regarding sending a wire? I am specifically focusing on wire transfers because Escrow companies prefer wires over Cashier’s Checks. Cashier’s Checks are no longer considered the best method, and Escrow may actually place a hold on that check for a few days until it clears their bank.

Did you know that most mainland banks with physical branches require you to go into a branch to initiate a wire transfer?

Many banks now give you the ability to transfer funds between your personal accounts that are at different financial institutions. But given the scenario above, transferring funds from a mainland account into a local bank, and then wiring funds to Escrow is not only a lot of extra work, but doing so will require you to show a paper-trail of proof that the funds went from account #1 to #2, and then on to Escrow.

My advice to you is to plan ahead. If you know you’ll need funds for your transaction from an account out of state, reach out to the financial institution as early as possible to ask them their policy and procedures for wiring money to an Escrow Company in Hawaii. And if you need funds from more than one institution, you should find out from each what their procedures are. Not every depository institution has the same rules.

You should also confirm with both your Lender Representative and your Escrow Officer the estimated dates you’ll need to have your funds reach Escrow’s bank.

Using Funds from Others
In one of the transactions from the above article we were obviously delayed with the buyer having issues getting their verified funds to escrow on time. One of the real estate agents involved with the transaction offered to use their own funds immediately to allow for the transaction to close on time. This was a wonderful and benevolent gesture, but unfortunately is highly illegal!

We also recently had a transaction where a buyer was purchasing an investment property where a portion of the down payment was coming from the real estate agent representing them. For whatever reason, the buyer and the agent had decided to keep the agent off title and any part of the transaction. That’s not allowed either.

Neither of these transactions should be confused with real estate agents that offer buyers a credit from a portion of their commission earned from the transaction.

The rules on the origin of the funds you are using in your transaction are very simple. You must use your own funds. You cannot use money from someone else and claim it to be your own.

If the money didn’t come from you, Federal Regulators say it then falls into 3 specific categories. It was either gifted to you, your borrowed it, or you are laundering someone else’s funds.

Gift funds are your funds. They were given to you and are now yours. The rule for gift funds is that they must come from a direct relative by either blood or marriage. A fiancé is also an acceptable giftor.

Borrowed funds are okay too! That is why lenders require you to furnish your most recent 2 months of bank statements. They are looking to see if the money you are now presenting as your own, actually came from someone else. Because if it did, you may have to pay it back. And if that’s the case, the underwriter must account for that new liability when qualifying you for your loan.

It’s the funds with no logical connection to the borrower that is a huge issue for the federal regulators. The feds take this so seriously that we in the mortgage industry have mandatory annual continuing education on this very topic. No other subject matter is covered as regularly and thoroughly as money laundering and suspicious activity.

I want to clarify because I know the agents involved with the two transactions above regularly read this publication. Neither of them was trying to do anything dishonest. Both are hard working honest people that were trying to help their clients. It’s unfortunate that there’s no way for the federal regulators to know someone’s true intentions. They just consider all of it a federal crime.

If you want to avoid any potential issues, make sure you are fully aware of all the funds required for your transaction. If you don’t have sufficient funds in your own name, it is best to speak with your real estate agent and Lending Representative as early in the process as possible.

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