We often have issues with Earnest Money Deposits (EMDs) because every penny that goes into a transaction must be “sourced.” This means we need to provide a copy of the EMD check as well as a copy of the bank statement for the account from which the check is drawn.
Realtors often encourage buyers to just get an EMD check from anywhere as soon as possible to in order to “seal the deal,” or to cement a transaction. But this can create enormous problems, so care should be taken.
If the EMD comes from a business bank account, for example, the entire business bank statement will have to be provided. This in turn will require every large deposit to be “paper-trailed,” often creating enormous difficulty. In addition, many lenders also require CPAs to provide: (1) letters stating that the withdrawal of cash will not adversely impact the business; and/or (2) a formal “cash flow analysis.” And unfortunately, CPAs are reluctant to provide anything in this era of extraordinary liability.
If the EMD comes from a relative, we will need a gift letter and a bank statement. Often, however, relatives are unwilling or unable to provide such things. In addition, some loan programs do not allow for gifts.
If an EMD check is from an unusual source, consult with us before submitting it to escrow.
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