Want to take the guesswork out of your next closing? This article reflects some of the most common questions that our National Escrow Administration answers from the hundreds of emails they receive daily. We hope sharing these questions and answers will provide insight when closing your next transaction. Some of these are scenarios in other states as well.

  1. There is some talk in Tennessee, and I have an agent who wants to market closings with cryptocurrency. From what I have read, it is legal in Tennessee. What is our Company’s position on handling these types of closings? 
  2. Yes, the Company has been closing transactions where the consideration was tendered using cryptocurrency, since 2013. The seller has to open a wallet to receive the type of cryptocurrency agreed upon in the purchase and sale agreement, on the agreed-upon closing date; the seller sends the buyer their public key or address to receive the payment in cryptocurrency. The seller has to wire transfer in U.S. Dollars to pay off any existing encumbrances, taxes, and closing costs. Additionally, the buyer has to send a wire transfer in U.S. Dollars to satisfy their closing costs, as well. 
  3. We have a seller that has requested we pay a $300,000 personal loan out of the proceeds from the sale. This “loan” is not a recorded lien on our property. We told them NO, that unless it was a lien on the property, we could NOT do so…am I thinking correctly? If so, can you remind me of the reasons why? I want to be able to give him a detailed answer. 
  4. Correct, we do not make courtesy payments from escrow because our duty is to consummate the real estate transaction. We only pay liens of record for the seller in order to clear title to the property and provide an owner’s policy of title insurance to the new owner. 

The funds held in our trust accounts are the public’s funds, they are not funds belonging to our Company; therefore, we have a higher standard of care to protect them and not use the account as a checking account to pay consumer debt. 

The seller needs to pay their personal debts directly and outside of escrow from their own bank account.

  1. The borrower on a cash-out refinance is requesting the loan proceeds be made to him as an individual because he does not have an account in the name of his trust. The borrower on the note is the individual and the trust. 
  2. On a loan transaction where the borrower is receiving proceeds, we follow the lender’s written direction and pay the proceeds in accordance with the loan instructions. In the absence of any instructions to the contrary, the settlement agent must pay the borrower on the promissory note and no one else. If both the individual and trustee of the trust direct the settlement agent to pay all the proceeds to the individual in writing, we would accept that instruction and pay the proceeds accordingly. 
  3. I have an escrow that is closing today and just want to confirm that nothing will be needed from escrow from the parties involved regarding a divorce. The listing agent has advised them each that without a stipulation or court order that the proceeds will be split 50/50 and has advised me to disburse the proceeds this way. I have signed Form 1099-S from both sellers agreeing to split proceeds 50/50. Do I need anything else from them? 
  4. Yes, you need written mutual instructions from both sellers to split the proceeds in half. The reporting of the real property transfer on IRS Form 1099-S does not dictate how the proceeds are paid at closing. Therefore, a written instruction from all the sellers as to the split of the proceeds is required and it does not need to match the split amount on Form 1099-S. Otherwise, the proceeds will be paid to both sellers in one check. 
  5. The seller in my current transaction is an LLC. He never established a bank account in the name of the LLC. He is selling off the only asset owned by the LLC and is directing us to pay him the proceeds as an individual. Is that acceptable? 
  6. We do not pay anyone other than the owner of record for the following reasons:

Legal reasons: We would have no idea if we had the entire operating agreement and all amendments to know whether or not a third-party payment was allowed, nor do we want to jeopardize the Company getting dragged into post-closing litigation for paying unauthorized third parties.

IRS Reporting reasons: Distributions made on behalf of the LLC to its members are separately reportable on a 1099 form. The settlement agent is only responsible for reporting the transfer of real estate on a 1099-S. We would not know which of the 17 different 1099 forms used to report distributions and would not want to take on the responsibility or liability for reporting.

New lender reasons: If there is a new lender on the transaction it is likely their loan instructions prohibit the payment of proceeds to anyone other than the owner of record since payments to third parties out of the seller proceeds have historically proven to be a tell-tale sign of mortgage fraud. We would have issued a CPL binding the Company to close in accordance with those instructions.

Alternatively, the owner of record could direct the escrow officer to pay the proceeds to the trust account of their attorney, on their behalf, to make the distribution and perform the necessary IRS reporting. 

Q: I am working on a cash purchase. The buyer is sending in over $300,000 and wants to know what assurances the Company will provide to him if the bank where our trust account is set up fails. What can I provide him?

A: The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company does not offer insurance on the funds invested for deposit, in addition to the insurance offered by the FDIC. To learn more about FDIC insurance limits, visit FDIC: https://www.fdic.gov/resources/deposit-insurance/faq/index.html.


Article provided by contributing author:

Lisa Tyler, FNTG National Escrow Administrator