Electronic earnest money is a modern method of payment that gives the real estate buyer the opportunity to pay his or her earnest money electronically rather than writing a check or obtaining a cashier’s check. A large number of consumers have moved away from a savings or a checking account. For those who have Venmo and PayPal accounts rather than a traditional bank account, the ability to pay earnest money electronically through a platform provides an entirely new modernization to the real estate transaction.
Further, having the ability for buyer clients and customers to pay earnest money electronically will remove some of the challenges associated with working with hard-copy checks such as buyers writing the wrong name of the listing firm, or writing the cooperating firm’s name, or writing the wrong title company, or as an agent, having to remember to give the check to your designated person to deposit the check or having to worry about misplaced checks.
Remember that check that slid between your car seats?
In addition to offering a new modern tool to the real estate transaction, another benefit being touted by the electronic earnest money payment platform community is that payment of earnest money electronically protects against wire fraud. Wire fraud is an international problem, specifically in the real estate community. According to the Washington Post, $969 million in 2017 “was diverted or attempted to be diverted” from real estate purchase transactions and wired to “criminally controlled accounts.” In 2016, the number of wire fraud cases reported by title companies jumped 480 percent from the year prior, per the FBI.
As a reminder, wire fraud occurs in a real estate transaction when criminals hack into an agent’s email account or the email account of a title agent involved in the transaction. The hackers wait until closing is scheduled and the transmission of funds is discussed. At that time, the hackers intercept the email containing the wiring instructions and then send a substitute email with different wire transfer instructions. The buyer receives the substitute email with the new wire instructions and instructs the buyer’s bank to wire funds to the hacker. By the time it is discovered, it is typically too late, and the money is probably lost forever.
To learn more about wire fraud and how to protect both your firm and the transaction, see “This Is Not a Test,” in the December 2018 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Dec18/Cybercrime.
The following discussion provides an overview of the concept of electronic earnest money in a question and answer format. In addition, the WRA is asking for your input, feedback and experiences with certain platforms; see more information at the bottom of this article.
Electronic earnest money FAQs
Q. Is electronic earnest money legal in Wisconsin?
A. Yes. Current Wisconsin law does not prohibit the payment of earnest money electronically. Furthermore, the revised offer to purchase will include in the payment of earnest money section a reference to electronic delivery of earnest money to further clarify the ability to pay earnest money electronically.
Q. Is electronic earnest money only available to those who do not have a traditional savings or checking account?
A. No. Electronic earnest money is available to any buyer, regardless of whether that buyer has a traditional checking or savings account. Q. Are there platforms that offer electronic earnest money payment to occur?
A. Yes. There are a variety of companies that, as of press time, offer a platform for the payment of electronic earnest money.
Modus: www.modusclosing.com/landing
DocuSign: www.docusign.com/learn/streamline-home-buying-experience
Sqaak: www.sqaak.com
TrustFunds LLC: www.trustfunds.us.com
ZOCCAM: www.zoccam.com
Q. How does electronic earnest money payment work?
A. Each platform may vary a bit in its approach, and you are encouraged to look how each one handles the electronic earnest money. However, the basic concept is this: first, the buyer is provided a secured link to pay the earnest money electronically; next, the earnest money is placed in the trust account of the firm, title company or attorney that is holding the earnest money.
Q. Can title companies and attorneys be a part of the electronic earnest money payment platform?
A. Yes. In instances where the listing firm does not have a trust fund, or there is not a listing firm and the buyer’s firm does not have a trust account, the parties may negotiate who holds the earnest money such as the title company or an attorney. If the title company or attorney are part of the electronic earnest money payment system, then the buyer could pay his or her earnest money that way.
Q. What happens if a party other than the buyer is going to pay earnest money?
A. The party paying the electronic earnest money may do so electronically. However, when someone other than the purchaser is going to pay the earnest money, the parties should consider drafting a special disbursement agreement.
Q. Do all of the earnest money rules apply if the money is paid electronically?
A. Yes. Wis. Admin. Code Chap. REEB 18 addresses the handling of earnest money, and Wis. Stat. Chap. 452.13 addresses trust accounts. Review Wis. Admin. Code Chap. REEB 18 at docs.legis.wisconsin.gov/code/admin_code/reeb/18 and see Wis. Stat. Chap. 452.13 at docs.legis.wisconsin.gov/statutes/statutes/452/13.
Other common questions related to earnest money
Q. The transaction failed due to the acts of the seller. The buyer would like the earnest money back. Can the earnest money be returned without the seller’s signature on a WB-45 Cancellation Agreement and Mutual release (CAMR)?
A. While it is natural to want to help the side that “deserves” it, the disbursement of earnest money and other funds from a real estate trust account is controlled by the rules found in Wis. Admin. Code § RL 18.09(1) and (2) and summarized in the WB-11 Residential Offer to Purchase. The rules give the parties involved a fair chance to make a claim and do not give the firm the right to decide who deserves to receive funds.
The WB-11 provides that the listing firm must wait 60 days after the date set for closing to take action unless the parties reach a written agreement for the disbursement of the earnest money.
After the 60 days have passed as stated in the offer, the listing firm may choose to initiate a small claims action or seek an impartial attorney’s written opinion as to who should receive the earnest money. The listing broker may deduct up to a specific amount of money in the offer to purchase from the earnest money for the legal fees involved in either of these alternatives. The listing firm also may continue to do nothing and allow the parties to resolve the earnest money dispute themselves or through their attorneys.
Q. How many trust accounts can a firm have?
A. The firm may have as many trust accounts as the firm deems necessary based on the services the firm provides. For example, the firm may open a trust account for each type of real estate activity that the firm engages in, such as sales and property management. Likewise, if the firm has more than one office location, there could be a trust account for each office.
Q. How long does the firm have to deposit the earnest money?
A. Wis. Admin. Code § REEB 18.031 provides that a firm must deposit all real estate trust funds received by the agent or the broker in the real estate trust account within 48 hours of receipt of the funds. The 48 hours are measured from the time the licensee receives the check — not from the date of the check. If the funds are received on a day prior to a holiday or another day in which banks are closed, the deposit must be made within the next two business days.
We want to hear from you
The WRA would like to hear from you about your experiences relating to electronic earnest money. Do you see a need for it, do you have a platform you have used, and was your experience positive or negative as an electronic earnest money platform user? Send us your comments at feedback@wra.org.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.