Archive for category Escrow Accounting

What are Outstanding Checks / Wires?

An outstanding check / wire are funds disbursed from your Escrow / Trust account according to the HUD-1 statement for a particular file (in your software system) that has not cleared from the bank statement. These specific disbursements will show up on the Outstanding Check / Wire Report of your reconciliation.

For example: A deal has funded and disbursed pursuant to the HUD-1 statement. After sending the mortgage payoff overnight, the assumption is made that the deal is closed and no additional follow-up is needed. In fact, the mortgage payoff was never received by the lender and therefore subsequent per diem interest has accrued that you may be responsible for.

The Outstanding Check / Wire report will identify the disbursement, from a particular file, that has not cleared. Research would be required as to why this transaction has not cleared.

The Outstanding Checks / Wires Report is a part of the Adjusted Bank Balance that makes up the second part of a “3-way” reconciliation. This report is generated after reconciling the account and printing the designated reconciliation from your software program.

!!!Note: Not all software systems use the name “Outstanding Checks Report.” This report maybe called other names such as “Outstanding Disbursements Report.”

Information and Follow-up:

I highly recommend title agents to review the Outstanding Checks / Wires Report after reconciling the account to reveal files that need follow-up in effort to avoid monetary loss.

In addition, title agents should review:

• Review all outstanding checks for lienable items (i.e. Mortgage payoff, taxes, insurance, etc.)
• All checks over 90 days old should be reviewed as to their status.
• All follow-up should be documented and copied to the file.

!!!NOTE: If you have a large outstanding check / wire report, there may be some items that are more important than others.

Use the guide below as a cheat sheet to follow up with items that are still outstanding as it could cost you in the future:

1. Checks payable to a mortgage company (lender payoff) – 5 days old or greater
2. Checks payable to a local City or County for taxes – 15 days old or greater
3. Checks payable to the Recording or Comptroller’s office – 15 days old or greater
4. Checks payable to a hazard insurance company (State Farm, etc.) – 30 days old or greater
5. Checks payable to your underwriter – 60 days old or greater
6. Checks payable to the IRS – 15 days old or greater
7. Checks payable to Clerk of the Court for Judgments – 15 days old or greater
8. Checks payable to homeowners associations or condo associations – 90 days old or greater
9. Checks payable to contractors, remodelers, roofers or any other construction services – 180 days old or greater
10. Checks payable to any water utility company – 180 days old or greater

Finally, if you have an outstanding check that is several years old issued to a person or entity that you cannot find and you have done your due diligence in documenting the closing file that you have made multiple attempts to contact them – you may be subject to your State’s escheatment law. Please check with your State’s law regarding escheating unclaimed funds. Failure to do so could cause fines and penalties.

A ’3-way’ reconciliation is the most accurate way of reconciling an account so that every cent is accounted for. The use of an adequate, all-inclusive software makes the reconciliation easier and more efficient. All underwriters require ’3-way’ reconciliations to be performed each month for each account and maintain the proper reports for audit purposes.

How to:

The basics of the reconciliation consist of your ability to match debits and credits from the bank statement to the reconciliation portion of your software program. !!!Note: All debits and credits assigned to your account from your bank (ex. Account analysis fee, check orders, sweep, interest, etc.) must be entered into the software program under a file name so that those transactions maybe cleared when you reconcile. Inside the reconciliation portion of your software, you maybe prompted to enter the ending Bank Statement date and/or the ending Bank Statement balance. Once you have entered in the designated information, then you can begin to clear the items in your software program as listed on the bank statement. After completion of clearing the transactions, you would then need to print the reconciliation. In addition to printing the reconciliation, immediately print the “Trial Balance Report” to verify that the reconciliation ties.

How it works:

The first part of the reconciliation is the Book Balance (your checkbook register). The second piece is the Adjusted Bank Balance. The Adjusted Bank Balance is a formula that consists of reports from the reconciliation:

Ending Bank Statement Balance
+ Outstanding Deposits / Wires Report
- Outstanding Checks / Wires Report
= Adjusted Bank Balance

The third and final piece is the Trial Balance. The Trial Balance is a separate report in your software program that must be printed immediately after reconciling. !!!Note: If you do not run the Trial Balance immediately after reconciling, your reconciliation may not tie. If the Book Balance, Adjusted Bank Balance and Trial Balance matches, you have a valid ’3-way’ reconciliation. If your Trial Balance does not match the Adjusted Bank Balance, you need to go through the items you have cleared to find a transaction that should not have been cleared, or a transaction amount that is different from the bank statement / software program, or clear a transaction that previously had not been cleared from the bank statement. The reconciliation is not valid until all three pieces match to the penny.

Reports to be retained:

A ’3-way’ reconciliation consists of 5 pieces of vital information. These reports must be retained for each account, each month for seven years. The complete reconciliation must contain at minimum the following:

1. A software generated “Reconciliation Summary Report”
2. A software generated “Trial Balance Report”
3. A software generated report of all “Outstanding Deposits / Wires”
4. A software generated report of all “Outstanding Checks / Wires”
5. A complete copy of the month’s Bank Statement
6. A software genereated “Cleared Items Report”

Using the reconciliation as a tool:

The reconciliation can be considered as a snapshot in time of the health of your operation. The reconciliation should be used as a tool to help avoid monetary losses due to the many pitfalls that exist in today’s business environment. The following reports should be reviewed after the reconciliation has been completed for items that need follow-up:

Trial Balance:
• Files with negative balances should be reviewed and the cause of the shortage should be documented in the file.
• Any file shortages greater than 30 days should be funded from operating immediately. Once the funds are collected from the responsible party, the operating account can be reimbursed.
• Files with balances greater than six months old, should be reviewed and funds disbursed to the appropriate parties.

Outstanding Deposits / Wires Report:
• All outstanding deposits greater than 72 hours should be immediately reviewed to determine why the funds remain outstanding.
• The party from which the funds are due should be contacted and documentation of this correspondence should be kept in the file
• Any outstanding deposits greater than 30 days should be immediately funded from operating. The agent can then collect the funds from the proper party and reimburse the operating account.

Outstanding Checks / Wires Report:
• Review all outstanding checks for lienable items (i.e. Mortgage payoff, taxes, insurance, etc.)
• All checks over 90 days old should be reviewed as to their status.
• All follow-up should be documented and copied to the file.