A real estate transaction is often a lengthy process, and it’s ideal when everything moves along smoothly until the closing. However, there are usually occasional delays, but that is to be expected. What isn’t always expected is when a check bounces in a real estate transaction. This can be a simple mistake on the part of the buyer who simply miscalculated how much money he or she had in their bank account. Or it could be an indicator of something more foreboding, such as real estate check fraud.
Whatever the cause, and regardless of whether you are the buyer, the seller, or a lender or real estate professional, there are several steps you must take after a check bounces. As a buyer who simply made a mistake, you’ll want to ensure the real estate transaction can continue. As a seller or real estate professional, you’ll need to investigate for potential check fraud and take action to mitigate the damage.
When you’re seeking to buy a house and secure a mortgage, it’s likely you’ll need to write a few checks for various things, such as earnest money or a good faith deposit to show the seller that you are serious about purchasing the home, and, of course, the closing costs.
It’s not going to be looked upon too favorably by the seller or the lender if the check bounces, and there is even a chance you could lose the house. Follow these steps to rectify the situation:
1. Immediately contact your bank because there is always a possibility that the bank will cover the check. Many banks offer bounced check protection as an occasional courtesy. This could also depend on your relationship with the bank and if you have a record of steady income so that the bank can be assured that the funds will soon be reimbursed.
2. In the event that the bank returns the check as insufficient funds available, you’ll want to contact the seller as soon as possible (or the agent working on behalf of the seller). If this was an earnest money check that bounced, it can be a good incentive for the seller to question the validity of the real estate transaction and whether or not you’ll be able to actually afford the down payment or acquire a mortgage.
If this was an accident, simply be honest. Explain that you took out or transferred funds and didn’t realize that there wasn’t going to be enough left in the account to cover the check. If you attempt to make excuses or outright lie, you’ll be giving the seller more cause to pull out of the real estate transaction, and a bounced check gives the seller legal right to do so.
3. Contact your lender. You’ll also want to make your lender aware of what happened. Your lender will have the full details of your financial situation and will be able to determine whether this was simply an honest mistake. However, you may have to continue to show more paperwork such as bank statements in order to prove that you do have funds to follow through with the closing, and it is likely any future payments will need to be performed via a cashier’s check, wire, or ACH transfer.
What a Seller or Real Estate Professional Should Do if a Check Bounces During a Real Estate Transaction
A bounced check at any point during the real estate transaction is an immediate red flag. It may have been a mistake on the part of the buyer. If that’s the case, you can decide whether to proceed with the transaction or not based on the details you receive from the buyer.
However, it could also signal an attempt at real estate fraud. The fraud usually entails a fake buyer submitting a check for more than the required amount at the time, and then asking for some of the funds back. The escrow agent or other individual holding the funds sends back some of the money, and shortly thereafter, the original check either bounces or is proven to be counterfeit, and the fake buyer disappears with the funds that were sent to him or her. In many cases, there isn’t much you can do, but it is always worth a try.
Follow these steps to attempt to combat fraud and possibly recoup any funds you may have lost as the result of real estate check fraud.
1. Try to stop payment on the check that was sent to the fraudulent buyer. If you are quick enough the bank can sometimes reverse the funds.
2. Contact the authorities. The FBI is your best bet for attempting to capture the fraudulent buyer and recoup your money. Often these scams are targeting multiple people and the FBI may have already been working on a case.
3. Regardless of the outcome of either of the above, you should insist on any future funds in any real estate transaction be sent via an electronic, secure ACH money transfer platform, which will significantly reduce the risk of fraud and bounced checks.
Many real estate professionals already utilize Paymints.io, a money transfer platform that is compliant with all banks and saves borrowers, buyers, sellers, and real estate agents time and money. Visit Paymints.io today to learn more about this safe option for money transfers in real estate transactions and why it is the preferred choice.