Be Smart: ACH Credit Transfers

There is a type of electronic check or transfer of funds that is called an ACH credit transfer. It can be used to fund real estate transactions. The Tennessee “Good Funds” statute at TCA 47-32-102(2) authorizes the use of Federal funds wire transfer including electronic payment as defined in 12 CFR Section 229.2(p). You guessed it, 12 CFR Section 229.2 defines electronic payment as a wire transfer or ACH credit transfer. We have learned that title agents in Texas and Louisiana have closed and disbursed on funds received as an ACH credit transfer only to have those funds withdrawn from their escrow account several days after closing.

ACH electronic transfers to a title agent’s escrow account are similar to the use of a person’s own credit card or debit card to make a payment or purchase. In other words, an ACH transfer is an electronic check rather than a paper check. And, although, ACH transfers are electronic, they are NOT “wire” transfers. Some lenders are funding real estate transactions by the use of an ACH transfer which costs them mere pennies to do, as opposed to a wire transfer that can cost an average of $10 to $20 per wire.

One of the dangers of an ACH transfer is that it can be recalled or reversed, even after it reaches the title agent’s escrow account. A wire transfer once credited to an agent’s account cannot be reversed or recalled. An ACH transfer may be recalled for up to 5 days after the settlement date, or as much as 90 days after the settlement date for certain limited reasons such as an unauthorized transaction.

We suggest that you exercise caution in funding upon an ACH transfer. You should contact the bank in which you maintain your escrow account to see if your bank can “block” the recall or reversal of an ACH transfer. The “block” would not stop the ACH transfer from entering the escrow account; it would stop the recall or reversal of the ACH transfer.