South Carolina Lawyer
SC Lawyer, November 2009, #2.
Are You Sure You're Ready to Disburse?
South Carolina LawyerNovember 2009Are You Sure You're Ready to Disburse?By William O. Higgins Imagine this scenario: You are a real estate lawyer, and you have just conducted a closing (yes, you, not your paralegal!). In connection with the closing, you have received an "official" bank check from your client, the purchaser, issued by All American Bank, an FDIC-insured national bank with a local branch in your town, in the amount required by the settlement statement and naming your firm as the payee. Additionally, you have received the lender's proceeds by way of a confirmed wire transfer into your IOLTA account with New Southern Bank. You deposit your client's All American Bank check into that same New Southern Bank IOLTA account, and you are ready to disburse-right? After all, the seller is certainly expecting to be paid at the closing table, and you know the real estate agent isn't leaving without a check. Plus, for you, it's much more efficient to disburse at the closing table-no need to mail or hand deliver those checks when the recipients are right there with you. But these are troubled economic times, and perhaps additional caution is warranted.
What happens if the All American Bank check turns out to be a counterfeit, was obtained fraudulently or bears an unauthorized signature? Do you, the closing attorney, intend to bear that risk? This article is intended to alert real estate closing attorneys and any other lawyers who utilize IOLTA (or other trust) accounts of the risks associated with disbursements from such accounts.
Good funds, collected funds, available funds?
The terms "good funds" and "collected funds" are often used interchangeably to refer to funds that are available to be disbursed from a trust account.
The term "available funds" is also used with some frequency, but should be used with caution. Based on the lawyer's relationship with his or her depository bank, deposited funds of various types may be made "available" for withdrawal immediately upon deposit. The problem, however, is that "available funds" are not "collected funds." The credit given by the depository bank for available funds is provisional only and may be revoked if the deposited item does not clear. See S.C. Code Ann. § 36-4-201 (2008).
For purposes of this article, the term "collected funds" is intended to refer to items that have cleared (i.e., for which final payment has been made) and for which credit is not subject to revocation. While a complete discussion of what constitutes collected funds is beyond the scope of this article, S.C. Code Ann. § 36-4-215 is instructive.
Rule 1.15(f) of the South Carolina Rules of Professional Conduct (South Carolina Appellate Court Rule 407) provides a "good funds" rule that specifies what types of funds can be treated as "collected funds" for purposes of trust account disbursements. Those "equivalents" are "Cash, verified and documented electronic fund...