Outstanding Checks in Trust Accounts
Updated: Feb 26, 2019
It is important that voided checks be recorded properly in your real estate closing program to insure duplicate checks aren't clearing which can cause the file to become out of balance in a negative way.
It is important to remember that underwriter premiums should be paid directly out of the escrow account on a per file basis.
Over the past few years, Underwriters have really been pushing for the cleanup of outstanding checks on Real Estate Trust Accounts. Efforts should be made to reach out to the payees to try and get them to negotiate those checks at their bank. Checks remaining in the account five (5) years from the date the check was issued should be escheated to the State Department of Revenue or a State entity in which the Escrow Account is being disbursed. This reduces the amount of funds sitting dormant in the account and keeps potential fraud down. This helps Law Firms and Title Companies keep their accounts properly maintained and able to close out inactive accounts since there is a place for the uncashed checks to be properly placed thereby eliminating liability for the Law Firm or Title Companies for holding funds for long periods of time.
It is most important that outstanding checks are reviewed monthly to keep lienable items from costing the firm/title company money from paying additional fees such as penalties and interest. Payoffs, homeowners’ insurance, clerk of court, tax commissioners are to be cleared in a timely manner. Once those items are reviewed and addressed, then the other payees should be looked at including Underwriter checks.
It is important that voided checks be recorded properly in your real estate closing program to insure duplicate checks aren't clearing which can cause the file to become out of balance in a negative way. Checks should be verified by the bank against clearing items up to the actual date that the check is being voided in the system. Once the stop payment has been issued by the bank then the check should be marked “VOID” and placed in a folder for voided checks or in the closing file. These checks should not be destroyed.
If a check needs to be reissued because it got “lost” in the mail, etc., it should first be verified by the bank to confirm that the check has not cleared the bank before reissuing the check to the payee. Remember, it is harder to collect than to give. It is always better to be safe than sorry in having to collect funds that have cleared twice. If someone wants a check immediately, you might want to give it a few days for the first one to possibly clear in case they tried to deposit by remote deposit on their smart phones.