Underwriting for Cash Transactions
While digital closings in real estate have seen a drastic increase in recent years, wire transfers aren’t always a buyer’s preferred method. According to a June 2023 Redfin report, over one-third of homes in the U.S. were purchased in all cash. With mortgage rates reaching their highest level in more than a decade, buyers have opted for this approach. It is still imperative to process these transactions with the same protocols. Here are some helpful underwriting tips related to cash transactions:
- Do not rush your cash real estate transactions. Practice the same due diligence for your cash purchase files as you would with a transaction involving a lender to help avoid clerical error claims.
- When verifying the identities of the sellers and buyers, we suggest in-person communication or, for any party that will not be able to appear for an in-person closing, audio-video calls to compare them to the government issued identifications and/or passports provided.
- Sending a “confirmation letter” to the address listed on the Tax Appraisal District for the seller expressing appreciation for their business has been helpful in catching potential seller fraud. See Stewart Bulletin SLS2022004 for more information and sample letter.
- Consider obtaining confirmation directly from the financial institution where the funds are held to verify the availability of buyer funds.
- We suggest you communicate the preferred method of receiving and verifying funds early to not cause delay of closing.
- It is a good business practice to confirm with your own financial institution that they have received and credited funds to your account before disbursing any funds.
- Remember to comply with your cash purchase reporting requirements from the Financial Crimes Enforcement Network Geographical Targeting Orders (FINCEN-GTO). Stewart National Bulletin SLS2023008 has a very handy flowchart that can help you determine if these requirements apply to your transaction.
- Please review Stewart National Bulletin SLS2011005, Disbursement Practices: Good Funds vs. Collected Funds, for more recommendations related to fund disbursement practices.
It is crucial to essential to continue following the proper protocols, even with all cash real estate transactions. If you are a Stewart Trusted Provider, feel free to contact your Stewart underwriting counsel with questions.
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