100 money orders totaling $50,000? How we handle cash payments in excess of $10,000…

Cash earnest money deposits in excess of $10,000

The Financial Crimes Enforcement Network (FinCEN) recently published their findings of a study they conducted assessing Suspicious Activity Reports (SARS) and Suspicious Form 8300 Filings Related to Real Estate Title and Escrow Businesses 2003–2011. The study confirmed the importance of Title and Escrow Companies filing of IRS Form 8300 – Report of Cash Payments Over $10,000 Received in a Trade or Business. Read on for the details of a transaction in which cash was received and reported.

A $50,000 earnest money deposit

Cash earnest money deposits in excess of $10,000An escrow officer for one of our sister branches contacted our National Escrow Administrators for assistance. She had just opened a new sale transaction. It was the purchase of a REO property with a sales price of $1.3 million. According to the Purchase and Sale Agreement the buyer agreed to deposit $50,000 in earnest money with the escrow company and the sale was scheduled to close in less than a week. So far so good, right?

Along with a copy of the Purchase and Sale Agreement, the real estate agent delivered an envelope to the escrow officer. Inside the envelope was the earnest money deposit of 100 money orders, in increments of $500. After she picked her jaw up from her desk, she informed the agent she would have to file some additional forms and needed some information from the buyer. She explained she would look into exactly what information she needed and get back with him. This is when she contacted her Escrow Administrators.

She was correct to do so. The receipt of the money orders triggered an obligation to file IRS Form 8300. Pursuant to the IRS Regulations, businesses who receive “cash” payments in excess of $10,000 need to report the funds received.

“Cash” as defined by the IRS is:

  • Coin and currency
  • Cashier’s checks, official checks, bank drafts, traveler checks and money orders if they have a face value of $10,000 or LESS.

Settlement agents must file Form 8300 upon receipt of multiple “cash” items received in one transaction. The multiple payments may have been made at one time or over the course of the transaction. A settlement agent must report upon receipt of the final “cash” item which puts the total of all “cash” received more than $10,000. Obviously this was the case in this deal.

Potential delays to be aware of

The National Escrow Administration sent the escrow officer a copy of Tech Memo 153–2012 Reporting Cash Payments over $10,000 using IRS Form 8300 and called her, as there was more than one issue to discuss. First, the escrow officer needed to obtain a signed W–9 – Request for Taxpayer Identification Number and Certification, as well as a copy of the buyer’s driver’s license. Next, she was reminded the form had to be filed within 15 days. Lastly, they discussed the timeframes for clearance of the funds.

The money orders were issued by Western Union® and MoneyGram®. Money orders may clear as soon as seven to ten business days but they could take longer depending on which Federal Reserves they were drawn on. Additionally, money orders are often counterfeited. If a money order is counterfeit, it could take weeks before it is discovered and the Company is notified. When this occurs, the funds previously credited to the trust account are immediately debited from the account. This poses a risk to the Company if the file closes and is disbursed without allowing sufficient time to pass to ensure they are not fraudulent.

Communication and cooperation are key

The escrow officer contacted the selling agent to let him know what she needed from the buyer and informed him the closing date would have to be delayed. The agent made arrangements for the buyer to come see the escrow officer by the end of the week. Fortunately, both the buyer and seller understood the need for an extension to the closing and the buyer assured the escrow officer he would wire the balance of the closing funds.

The buyer was cooperative, so she asked why the earnest money came to her in this manner. Turned out he is a real estate investor. He regularly attends auctions. At an auction the successful bidder has to pay right then and there with either cash or certified funds which is why he had money orders in that denomination. Since, at an auction he does not know what the sales price will be he regularly purchases money orders in small amounts so he can pay for his purchases. This explained why he seemed unfazed by the request for his Social Security Number and driver’s license – he was familiar with this process.


Real estate transactions are often a target for illegal activity including a means to launder funds. Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. This is true, unless the funds are reported. Settlement agents have a duty to monitor and report “cash” payments to the IRS. Failure to do so can result in hefty fines.

Although the escrow officer did not believe this buyer was up to anything illegal, she still identified she had a responsibility to report the “cash” received, eliminating the Company’s risk of being fined. In order to ensure she did this properly she did not hesitate to contact National Escrow Administration for assistance.

Questions or comments? Please share below!

The REO Transaction Process [Infographic]

REO Transaction Process Infographic

Click the image above to download.

With the housing market continuing to show positive signs with home values and rent prices moving upward, foreclosures continuing to decline, and interest rates at record lows, home buyers are presented with a unique opportunity as they search for real estate in the Puget Sound market.

Because REO or Real Estate Owned Transactions still comprise a significant portion of the inventory in the Puget Sound region, we have created the illustration below that depicts the REO transaction process, breaking it into three general sections; The Beginning, the Middle, and The End.

Understanding the general process from the opening of escrow to closing can make the closing experience a better one for all parties involved.

REO Transaction Process Infographic

To download this infographic in a printable PDF format, click here.

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Please share your questions or comments below!

REO Transaction? Watch for these details when setting client expectations…

Checklist for REO Transactions

Buying an REO (or Real Estate Owned) property involves a slightly different escrow process than your standard home sale. Realtors and Buyers need to remember that they are in escrow with a Bank/Lender (the “seller”) and the Bank/Lender has strict procedures in place that must be followed during the process.  Understanding certain details can help you set the proper expectations with buyers and help ensure that your REO escrow goes as smooth as possible.

Here is a glimpse of the details to look out for if you’re in an REO transaction.

Tips for smoother REO Transaction

Click the image above to download tips for REO transactions.

The Seller – In an REO transaction the Seller is an “out of state” Bank. The Bank contracts a 3rd party “Asset Management Company” which represents them in the transaction and approves the final escrow closing documents. All correspondence is done by email or by their website.

Title Commitment (prelim) – Escrow will handle ordering title to insure it is ordered from the appointed “title company”. This could be a local or national division depending on the arrangements the Seller has made.

Home Owners Association (HOA) – If you are aware of an active HOA, please be sure Escrow is also notified to insure all delinquent dues are paid current at time of closing.

Loan Documents – Should be delivered to Escrow five working days prior to closing. Once loan documents are received and Buyer’s Lender has approved the estimated HUD Settlement Statement, escrow can set an appointment for the buyer. The earlier the documents are available, the better the chances are of an on-time closing. A HUD Settlement Statement should be available to the Lender 24 hours after receipt of Loan Documents.

Proactive Communication

Our seasoned escrow staff believes that clear, early, and frequent communication with our clients is critical with every escrow closing.  With that in mind, we provide the information here to our clients immediately when an REO transaction is opened.  Being aware of potential roadblocks early in the process allows time for all parties to be better prepared and sets the stage for a positive closing experience.

Courtesy Signing – If the Buyer is unable to sign with the assigned Escrow Officer, an approved Mobile Notary will be required and an additional fee could be charged. Your Escrow Officer will arrange for the courtesy signing once the loan documents have been received.

“Seller documents cannot be sent until Buyers documents have been received.”

Seller Documents – Seller documents cannot be sent until Buyers documents have been received. The REO Seller and their 3rd party Asset Company may require 24-72 hours to approve the HUD after ALL demands have been received.

Courier Fees – Buyer courier fees will be “estimated” at time of signing and adjusted to the actual cost of courier fees at the time of funding.

Buyer / Lender Funds for Closing – To meet closing deadlines, we highly recommend wiring the funds. If you send a Cashier’s Check it will need to be held in the Trust Account overnight before we can record. If a Personal Check or Official Check is presented, it could require a 10 day hold before we could close and disburse funds.

Funding – Escrow will coordinate with the Buyer’s Lender on the Bank’s HUD approval before funding can occur. (Changes to the Seller’s side of the HUD require additional Seller approval).

Have you been a part of an REO transaction where one of these potential hurdles was cleared because an escrow officer alerted you? Please share by commenting beow!