by Robert R.Michael, Esq.

BWW Law Group, LLC*

USFN Member (DC, MD, VA)

On February 4, 2022, the Virginia Bureau of Insurance (the “Bureau”) issued Administrative Letter 2022-01 (the “Letter”) outlining the practice of “split settlements” in real estate closings in Virginia. The Bureau’s Letter concludes that title settlement agents may not participate in “split settlements” without violating Virginia’s laws and regulations. As a result, sellers of REO properties will often have to engage counsel (as opposed to non-attorney settlement agents) to represent them in the sale of REO properties.

WHAT ARE “SPLIT SETTLEMENTS”

Virginia Code § 55.1-1006 authorizes a purchaser to “select the settlement agent to provide escrow, closing, or settlement services in connection with the transaction.” This becomes problematic when the purchaser selects a settlement agent who is unfamiliar to the REO seller (because most sellers of REO properties prefer to have their interests represented by a firm or settlement company which is familiar with their processes and requirements). Thus, while everyone knows that the purchaser’s chosen settlement agent is THE settlement agent for purposes of the closing and disbursements, REO sellers often engage non-attorney settlement agents to manage the closing on their behalf. This is the quintessential “split settlement,” which the Bureau’s Letter condemns.

THE BUREAU’S STATUTORY ANALYSIS

The Bureau’s conclusion rests on two major premises, neither of which are controversial. First, VA Code § 55.1-1008 squarely places the fiduciary responsibility for the “settlement services” on the settlement agent. Second, provisions of the Code (at 55.1-900, 55.1-902, 55.1-903, 55.1-1000, 55.1-1006, 55.1-1007, 55.1-1008, and 55.1-1011) all refer to a singular settlement agent. To underscore the effect of these factors, the Bureau further observes that “If multiple settlement agents were anticipated or authorized under the Code, there would be no need for the Code to designate the buyer as having the exclusive right to choose the settlement agent for the transaction and to specify that this right cannot be varied or waived.” Because the “plain language of the Code [refers to] a single – not two or more - settlement agent” the Letter concludes that the Code does not authorize “split settlements.”

SELLERS ARE ENTITLED TO REPRESENTATION – BY COUNSEL

As the Letter acknowledges, the Bureau does not exercise any oversight over practicing attorneys. As the Bureau also concedes in a list of “Frequently Asked Questions” updated and posted to the Bureau’s website on February 16, 2022, sellers (and purchasers) are entitled to retain separate counsel in conjunction with a real estate closing.

THE TAKEAWAY

For closings on sales of REO properties where the purchaser selects a settlement agent with which the seller is not familiar or comfortable, sellers should engage counsel to represent their interests in the closing, since their preferred (non-attorney) settlement agent will no longer be permitted to perform those services.

@Copyright 2022

April e-Update