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As I previously discussed, the Virginia Bureau of Insurance (“BOI”) published a letter in February, 2022, stating that they interpreted Virginia Code § 55.1-900, et seq. and § 55.1-1000, et seq. to prohibit the long-standing practice of “split settlements.” The letter (of course) didn’t change the law, regulations, rules of legal ethics, or even the standard contracts used throughout Virginia. It’s purpose was to tell our industry that our practices must change because those long-standing practices are illegal. Because this would cost many attorneys money, they’ve resisted change, but that places law-abiding lay title companies and attorneys in a quandary. In order to comply with the BOI’s instructions, they must require change, but the arrogant, unethical attorneys — in particular, the ones from Central Virginia whose practices were the primary target of letter — refuse to do so.
The Simple Calculus
Consider the following authorities that govern these matters expressed as simply and directly as possible.
“[I]t is ultimately the settlement agent, as identified by the buyer, who must perform all of the settlement services prescribed by the Code.”BOI letter, Item II.
“’Escrow, closing, or settlement services’ means the administrative and clerical services required to carry out the terms of contracts affecting real estate. These services include . . . receiving and issuing receipts for money received from the parties, ordering . . . payoffs, ordering . . . inspections, preparing settlement statements or closing disclosures, determining that all closing documents conform to the parties’ contract requirements, setting the closing appointment, following up with the parties to ensure that the transaction progresses to closing, ascertaining that the lenders’ instructions have been satisfied, conducting a closing conference at which the documents are executed, receiving and disbursing funds, completing form documents and instruments selected by and in accordance with instructions of the parties to the transaction, handling or arranging for the recording of documents, sending recorded documents to the lender, sending the recorded deed and the title policy to the buyer, and reporting federal income tax information for the real estate sale to the Internal Revenue Service.”VA Code § 55.1-1000, (edited to remove those services that are not at least in part performed for the benefit of the seller).
“[T]hat portion of the Settlement Agent’s fee billed to Seller . . . and any other proper charge assessed to Seller will be paid by Seller.”Northern Virginia Association of Realtors Regional Sales Contract, paragraph 22.
So, let’s sum up what these three quotes provide. To start, the Settlement Agent has complete control over all closing services, which means they perform and charge for them, or allow them to be performed by another qualified entity (title company or attorney) as directed by the Settlement Agent. Even if directing another to perform, the Settlement Agent must still verify that the other qualified entity did a competent job, because the Settlement Agent will be held responsible for the errors of that other entity. While it’s well-understood that any entity providing professional services is entitled to charge for those services, the standard contracts used throughout Virginia nevertheless expressly provide that the seller should pay seller fees to the Settlement Agent (albeit some more vaguely than others). How could an attorney well-versed in the law make a good faith argument against the authority of the Settlement Agent?
Any such argument must be in bad faith. The BOI’s interpretation is crystal clear and in a completely accurate interpretation of the law, and the contracts reflect that. There’s simply no support for the contrary argument, and citizens, but especially attorneys, should know that they may not pick and choose which laws they want to follow. A couple weeks ago, I spoke to the offices of some legislators, after which I emailed them a more detailed argument than you’ll read here. Attorneys are intimidating Settlement Agents (i.e., lay title companies and other attorneys), threatening complaints if the Settlement Agent includes fees for their own services on the final settlement sheet. They advance twelve strawman arguments devoid of any logic to justify their behavior, and employ several underhanded tactics, exposing the attorneys’ true motives. These attorneys don’t care about the law, regulations, rules of legal ethics, or even their own clients’ wishes, but instead care only about their wallets and egos.
A Dangerous Culture
These attorneys are leading the charge towards establishing a culture of noncompliance with the law. My employer (a title company) lost at least two transactions because the seller’s real estate agent knew we would be charging the seller a fee. This demonstrates that their attempt to control our fees cannot be separated from unlawfully influencing the choice of settlement agent.
A purchaser or borrower in a transaction related to real estate in the Commonwealth shall have the right to select the settlement agent to provide escrow, closing, or settlement services in connection with the transaction. The seller in such a transaction may not require the use of a particular settlement agent as a condition of the sale of the property.§ 55.1-1006 (emphasis added)
Of course, this is a problem that predates the BOI’s letter. I received an email only two hours before publishing this post in which a real estate agent threatened not to have her clients sign a contract if we weren’t willing to hold an escrow of their FIRPTA funds. To repeat, a seller may not refuse to sell their property based on who the buyer chooses as the settlement agent. These real estate agents are sometimes ignorant as to the gravity of their words — they aren’t attorneys — and that makes them quite impressionable to videos like this one in which a title insurance agency provides instruction on how to vet the settlement agent in violation of § 55.1-1006.
To avoid the argument, some attorneys are withholding information in order to prevent the Settlement Agent from performing the work. Consider the following:
“Seller will sign such . . . documents as may be required by the . . . Settlement Agent, and . . . authorizes Settlement Agent to obtain pay-off or assumption information from any existing lenders.”Northern Virginia Association of Realtors Regional Sales Contract, paragraph 20.
How can an attorney, in good faith, argue that the Settlement Agent has no authority to order the payoffs? You know the answer.
The result is a culture of attorneys, title companies, and real estate agents all continuing to act without respect for the law or their clients own directions, and relying on “everybody’s doing it” to justify their illegal activity.
Dealing with the Legislature
I’ve proposed several edits to the existing laws, most of which shouldn’t be necessary but will be helpful in making it all the more difficult for these attorneys to avoid sanctions if they continue to disregard legislative intent. However, my claims also establish one important point addressed by my most important proposed edits: The statute demands that the seller not in any way influence the buyer’s choice of the Settlement Agent, but objecting (without authority) to the Settlement Agent’s fees necessarily exerts such forbidden influence on that choice. The two can’t be separated. The relevant section forbidding such influence is § 55.1-1006, which was recently amended. Here is the section with my proposed changes appearing as underlined text:
Choice of settlement agent. A purchaser or borrower in a transaction related to real estate in the Commonwealth shall have the right to select the settlement agent to provide and charge fees for escrow, closing, or settlement services in connection with the transaction. The settlement agent may, at its sole discretion, contract with other entities permitted by law to perform escrow, closing, or settlement services at the direction of the settlement agent. The seller in such a transaction may not require the use of a particular settlement agent as a condition of the sale of the property, nor may the seller by contract avoid payment to the settlement agent for such services performed by the settlement agent on behalf of the seller. Nothing in this chapter shall prohibit a seller from retaining an attorney licensed pursuant to Chapter 39 (§ 54.1-3900 et seq.) of Title 54.1 to represent his interests and provide legal advice pertaining to escrow, closing, or settlement services. Such representation may include deed preparation, fee negotiation with entities other than the settlement agent, and review of applicable documents and advising the seller on any legal matters related to the settlement or closing process. Fees charged for such legal services would be in addition to fees charged by the settlement agent and must be paid by the seller.§ 55.1-1006
An analogous change would need to be made to § 55.1-1007 in order to completely close this loophole. I’ve also made additional proposals expressly including attorneys as subject to sanctions for violations of the code and expressly acknowledging that the Settlement Agent chooses whether or not to delegate performance of closing services to other entities. In truth none of these should be necessary. Their purpose is to prevent attorneys from manipulating the statutory text so as to deny the necessary effects of their disruptive behavior. Attorneys shouldn’t be doing that to save a revenue stream to which they were never entitled in the first place.
All that said, it’s possible that the legislature wants to change the law and allow for multiple settlement agents. Maybe they want to do away with lay title companies altogether. All of that is their prerogative. However, if they still intend for their to be only one Settlement Agent, then they need to amend the relevant laws as I’ve requested. Either way, it should trouble everyone in the Commonwealth — politicians, regulators, and consumers — that attorneys are showing such brazen disrespect for the rule of law. Even if they change the law, where’s the guarantee that these attorneys will follow it if they don’t like it even as rewritten? There needs to be greater deterrence.
If you want this change to occur, please retweet my tweet. Your retweets will each tag the relevant authorities that need to give me an audience.
There are bigger fish to fry, but this is still an important issue.
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