Definition and Example of a Real Estate Deposit Receipt
An earnest money deposit is usually paid to a title company, escrow company, or real estate brokerage when an offer is made to buy a home. This entity prepares a deposit receipt to prove that the buyer actually handed over the earnest money deposit.
The trend today is for the title company and/or escrow officer to issue the deposit receipt. It is generally issued after the buyer's earnest money deposit has been deposited into the title or escrow company's bank account. It will often contain the following information:
- The name of the title company
- The address of title company
- The name of title company's bank
- The title company's bank account number
- The receipt number
- The escrow number
- The property address
- The date of deposit
- The name of the person who received the receipt
- The amount of the deposit
- Name(s) of the payor, who is usually the buyer
- A copy of the original check
If the real estate brokerage handles the deposit receipt, it will be entered into the broker's trust account. To deposit funds from a buyer into any other kind of trust account might be a violation of state law, and real estate brokers are not allowed to co-mingle funds.
- Alternate name: Receipt for Deposit
For example, a couple who want to purchase a home decide to place a deposit. They initiate a wire transfer of the funds to the bank of the escrow company. As a result, a real estate deposit receipt is issued to the couple, which proves that they made the transfer to deposit the money.
How a Deposit Receipt Works
One common way to handle the initial deposit check is to allow the buyer to wire the funds directly to the title or escrow company's bank. A home buyer will still need evidence of that deposit to produce for their mortgage lender, and that is why a deposit receipt is imperative for a home buyer to obtain.
The lender will want to see that the original earnest money deposit came from the buyer's personal funds.
If it was paid by a third party on behalf of the borrower, the mortgage lender will require additional documentation. In turn, the mortgage lender will check the borrower's bank statement to make sure the money in the buyer's bank account was not recently deposited from an unknown source.
The process is commonly referred to as "seasoning of funds." A mortgage lender needs to identify the source of the funds, which must be in the buyer's account for a certain time period, after which time the source of funds is not nearly as important. The lenders look for documentation beyond the deposit receipt to ensure that the borrower is using their own money to buy a home, because if not, they might not be able to meet future mortgage payments.
- A deposit receipt is a record that a buyer paid an earnest money deposit.
- It is most commonly used in conjunction with real estate.
- The receipt is essential to prove that the buyer deposited the funds.
- Funds must come from the buyer's resources.