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The Virginia Bureau of Insurance (“BOI”) recently published a letter that’s turned the real estate industry upside down. In short, they suddenly published an opinion stating that they interpreted Virginia Code § 55.1-900, et seq. as prohibiting the long-standing practice of “split settlements.” Well, sort of (q.v.). There’s been a lot of commentary on the subject that I won’t rehash here. Instead, I’ll do three things: 1) point you to the letter; 2) point you to the FAQ that followed; and 3) tell you that I have a firm opinion on how the letter, FAQ, and Virginia law should be interpreted.
That said, there are many in the industry that disagree with my interpretations. This is problematic. The real estate industry is filled with attorneys whose job description can be described as little more than, “Find ambiguities and exploit them to benefit your client.” That’s what we do, and we’re usually better at it than the average person. While I believe that many people are intentionally misconstruing the letter and FAQ simply to protect their seller-side-only settlement revenue streams (e.g., those that, as recently as 2 minutes before my scheduling of this post, knowingly misapply Legal Ethics Opinion 1346, et al. to settlement companies), some of the disagreement is honest and reasonable. Because we’re all bound by the requirements of our insurance licenses and, in some cases, law licenses, to get this right, that’s going to result in angry, threatening phone calls and emails, then ethical complaints to the BOI and Virginia State Bar (“VSB”), and finally actual lawsuits. I’ve experienced the first part of that already and have been threatened with the second. I’ve also been threatened by attorneys stating that they’ll advise their clients not to show up for closing. This means that consumers will also be made to suffer, and they may soon also be threatening lawsuits. Clearly, time is of the essence, and the BOI knows that.
I Can Also Write Letters
On March 7, 2022, I sent an email to the email address to which the letter directed us for questions and comments. For the record, it’s email@example.com. Please make a note of that. In the fashion typical of an attorney, my email was well-organized, provided context for my concerns, and then asked five pointed questions. The response I received from Chuck Myers (Supervisor of the RESA Investigations Section for the Virginia Bureau of Insurance) merely regurgitated the vague language of the BOI letter and FAQ and flat out ignored my questions. I wrote a return message, some of which I reproduce here.
Is there any way I can get direct answers to the questions I asked? They represent common sources of tension between title companies springing directly from ambiguities present in the BOI letter of 2/4/2022. [Settlement Company] has gone so far to publish a letter instructing TSAs what they’re permitted to charge even in situations where MBH isn’t the TSA and therefore has no defined place in the transaction. For a settlement company that is NOT the TSA to be attempting to dictate terms like that seems ridiculous . . . . The industry needs clarification as to the consequences of the BOI’s interpretation of RESA. Here are the questions once again.
The questions were as follows:
- In of the Virginia Code § 55.1-900, et seq., does the Seller (or any agent of the Seller) have the right to dictate the amount of the processing fee charged by the Settlement Agent to the Seller?
- Is a $425 processing fee charged by the Settlement Agent to the Seller per se unreasonable even if the Seller’s side of the settlement is outsourced to another settlement company chosen by the Seller?
- Does the answer to the second question depend on the specific facts of each case, and therefore require the Settlement Agent to vary its fee depending on exactly which services are performed on behalf of the Seller?
- If the answer to the third question is that the Settlement Agent must tailor its fees to the specific facts of each case, is a $425 processing fee is per se unreasonable if it includes performance of the Seller’s side of the settlement?
- In light of Virginia Code § 55.1-900(9), is the Settlement Agent permitted to compel the Seller to allow the Settlement Agent to perform the Seller’s side of the settlement?
For the record, NVAR’s Regional Sales Contract, which governs the majority of residential closings I see, also leads to my interpretation, but I can’t ask the BOI to interpret a contract. See paragraphs 4 (“Settlement”) and either 22 or 23 (“Fees”).
I have yet to receive a response — not even one saying that he can’t answer my questions — and considering how quickly I received his first response, I think it’s safe to say that I won’t be receiving one, the nuisance that I am.
Nobody Wants a War
Here’s the thing: I’m not concerned whether the BOI makes a statement agreeing or disagreeing with me. What concerns me is that they’re refusing to make any subsequent statements at all even in response to specific issues carrying widespread disagreement in the industry. If licensed professionals have an honest belief that the “other side” is violating the law, the rules of ethics, or the terms of the clients’ contract, those professionals are ethically and legally bound to issue the aforementioned threats. We’re just doing our jobs. This isn’t our fault.
The BOI has acted as Eris, the Greek goddess of discord. Eris threw an apple between the divine guests at a wedding. It was inscribed with the words “for the most beautiful,” or “to the fairest,” with the resulting squabble among Aphrodite, Athena, and Hera eventually ballooning into the Trojan War. Much like the uncaring gods, the BOI has now stepped back as if to say, “Not our problem.” If they’re simply dragging their feet, that’s no better. They know what they’ve caused and have had plenty of time to form their opinion. Expressing that opinion in an email or letter, or simply updating their FAQ, is a relatively quick part of that process. Failure to do so is irresponsible, unprofessional, and a violation of whatever oath, formal or otherwise, the higher ups have taken as public servants.
If my underlying premise about industry tension is correct — and I don’t see how it couldn’t be — then my questions are your questions as well. So, flood the email address with those same questions so that they’ll be defined as “frequently asked.” If your interpretation of the BOI’s letter and FAQ differs from mine, and you feel you need to phrase these questions to cater to your interpretation, even better. Show Mr. Myers and the BOI that there is genuine disagreement and tension in the industry. We’re all trying to minimize our risk, and we need more clarity to do so.
Get your act together, BOI, and return stability to our industry. My phone won’t stop ringing.