What are certified funds? What are the differences between a “cashier’s check, bank money order, personal money order, cash, check, wired funds or ach?” I’m buying real estate and my title company wants me to bring “cash or equivalent” or “certified funds.” Why? Why can’t I just write a personal check? The money is there! Does somebody stamp my hundred dollar bills as “certified?” What bank is going to give me $200,000 in hundred dollar bills so that I can buy my house? Do I need an armed guard?
Relax! The purpose of this blog post is meant to give a simple explanation of why “certified funds” are required in your real estate transaction and how to acquire and present them to the title company.
Certified funds are just that. They are certified to be good, guaranteed, valid, and non-revocable. Here are the different types of certified funds:
- Cashier’s Check
- Bank money order
- Wire
- Cash
Simply put, once a cashier’s check or bank money order is issued by a bank, it cannot be recalled or cancelled by the bank. The bank that wrote the cashier’s check or bank money order must by law, honor and pay the amount due in the document. Therefore, it is the same as handing a person the equivalent amount of funds in cash. Personal checks or personal money orders can be cancelled if it is determined that there is an issue with the check or the underlying funds. Therefore, personal checks or personal money orders must “clear” the issuing bank before the payment is deemed absolute. This could take as long as a week or more.
A wire is a method of transferring funds between two banks. Once the wire has left the issuing bank and has been deposited in the receiving bank, the transaction is complete and final. The funds cannot be returned without the approval of the recipient bank and underlying customer.
Cash is, well, cash. It is absolute funds, and value has is transferred immediately to the holder. There is no issuing bank to recall the funds. It is the absolute transfer of value when given from one person to another. However, we highly recommend not paying for your house in cash. And so will your bank when you request $200,000 in cash to buy your house!
Certified funds are required because it assures that the funds are good and valid and present at the closing of the transaction. A closing is set for a certain day and if, for example, a personal check is presented, the title company will have to wait at least a week before giving the seller their proceeds from the sale. If the seller does not receive his proceeds for a week past the closing date, well, the parties have not really closed on the agreed upon date, right? In order to ease this issue, your closing agent will require certified funds so that she may disburse proceeds to the seller, commissions to agents, filing fees, etc. Certified funds give the closing agent the assurance that she is holding good funds and is clear to let money go to the various parties entitled.
When you are ready to complete your real estate closing, you will either pay for the real estate from your own money, borrow funds, or a combination of the two. If you borrow the funds, most likely your banker will either give you a cashier’s check to deliver to the title company or simply wire the funds on your behalf. If you are responsible for a portion of the funds, you will need to request a “cashiers check” or a “bank money order.” Depending on your bank, either term may be used.
Buying or selling real estate is a major investment and can potentially cause you stress. Our goal at Tallgrass Title is to answer your questions about certified funds or any other aspect of your transaction. Its our job!