Thursday, September 27, 2007

rubber checks in a real estate transaction

Robert Franco has a post on his blog about American Home Mortgage using rubber checks to pay property taxes.

The idea of issuing rubber checks to pay taxes is entirely repugnant, wouldn't you agree? There oughta be a law! Somebody should do something! Criminy! What about the children?

I think issuing rubber checks for any reason is entirely repugnant, especially when the party issuing the rubber checks is a fiduciary and a trusted professional in a real estate transaction.

Do you know that less than responsible attorneys and title agents routinely issue rubber checks at closing? Do you think I'm kidding?

If you are a seller, just ask the attorney or title agent for your proceeds in the form of a wire or cashiers check. A wire or cashiers check is considered good funds, that means REAL money, in hand now, not a week from now, and not potentially rubber money. Good funds can only be produced by someone who actually HAS the money to give you.

A request for good funds is the litmus test of responsibility in a real estate transaction. It separates the wheat from the chaff, the strong from the weak, and more succinctly and to the point, the responsible from the irresponsible.

Consider this real life scenario playing out in my office today. There are three closings taking place, each dependent on the others. There are three families whose lives are on hold wondering whether or not they will be able to complete their very important real estate purchase.

These are what we call domino transactions. The seller on the first transaction must sell his house in order to purchase the house in the second transaction. The seller in the second transaction must sell his house to purchase the house in the third transaction.

To add to the drama, the house being purchased in the third transaction is being sold by a lender who foreclosed. The contract has a strict deadline which expires today.

An attorney in Pittsburgh is handling the first transaction, my office is handling the second transaction, and a title agent in Florida is handling the third.

Domino transactions require cool cooperation between professionals and many, many things have to go just right for a successful conclusion, especially on the last day of the month - a high volume day for the entire industry.

All seemed right with the world yesterday until we discovered a weak link, the attorney in Pittsburgh. The attorney planned to issue a rubber check to his seller. Why? Well, he was not attempting to assure deposit of good funds from his buyer's mortgage lender before he intended to disburse. He just had no comprehension that REAL money had to move through all transactions and that rubber money was not sufficient.

Think about that so that you really understand.

He expected the seller to take his check, after all he's an attorney, which would take a week to clear. He didn't give a crap that the seller needed good funds for their home purchase. He suggested that we accept HIS check which would take a week to clear. He didn't give a crap that our seller needed good funds to purchase his home in Florida and that WE were prepared to wire funds to that end.

You read in the papers, don't you, that mortgage lenders DO go out of business. You also know that some attorneys and title agents - the irresponsible ones - sometimes steal the money from escrow.

I don't know this attorney. I don't know if he's a drug addict. I don't know if he's been using his escrow account to pay for a BMW and a big house. I don't know and I don't care because I will not close without good funds.

I DO know that he is irresponsible and disburses real estate transactions without having received good funds into escrow. THAT means that his house of cards might just fall down and any sorry sap who joins his game of irresponsbility or is intimidated into taking his rubber checks is at risk. I'm NOT at risk because I will not close without good funds.

So, we've forced this attorney to face the reality of his responsiblities. He has contacted the mortgage lender. He is "trying" to get good funds deposited into his account so he can wire the money to us today. We had to move the other two closings to a later time in the hopes that his "efforts" would be successful. Everyone is hoping that the REAL money will arrive on time and that these families can complete their very important real estate transactions.

Some people who read post might be thinking that I'm a big pain in the ass. I've got news for you. It's the attorney AND those like him who have no respect for money, responsibility and the clients they serve who are the pains or the asses, you choose.

Think of all the economic and emotional pain being experienced by so many people tied to real estate in this country and think of the repercussions reverberating through the markets of so many countries and remember this. It's source sits squarely on the shoulders of the irresponsible so-called professionals who don't give a crap about what's right and what's REAL.

It's that simple.

1 comment:

Todd said...

Any attorney that allows a transaction to proceed without GOOD funds should be subject to criminal prosecution. Paying taxes with a rubber check is in the same category.