On February 4, 2022, the Virginia Bureau of Insurance (BOI) released an opinion that comes down on the common practice of "split settlements" or "split closings." A "split closing" is when a seller chooses a different settlement company to represent her than the buyer. According to the BOI, the practice of having TWO settlement agents involved in the same home closing is out! Just like Frodo's ring, "[T]here can be only one settlement agent per transaction responsible and liable for 'escrow, closing, or settlement services.'” BUT, before we start wondering how the world of home closings will go on, let's dig into what the BOI opinion really means:
What services does the BOI opinion address (and not address)? The BOI opinion only addresses settlement services, which are separate from title insurance and the preparation of deeds. Va. Code § 55.1-1000 defines these services as: "administrative and clerical services required to carry out the terms of contracts affecting real estate.... [Like] placing orders for title insurance, receiving and issuing receipts for money received from the parties, ordering loan checks and payoffs... preparing settlement statements or closing disclosures..." etc.
What does it mean to have "only one settlement agent?" The BOI is not saying that a single settlement agents must do everything. The BOI writes, "...the Code does not prohibit the settlement agent from retaining or engaging other individuals or entities to assist with performing certain administrative components of the settlement transaction....." Practices like hiring mobile notaries to assist the settlement agent are clearly still allowed.
Likewise, the seller still chooses the attorney to draft the deed. Drafting deeds are the practice of law and not regulated by the BOI. Plus, most contracts make this a seller responsibility, unlike choosing a title company, which is always a buyer's decision in residential purchases.
So, what does the BOI opinion change? The BOI makes it clear that only the buyer's settlement agency can be responsible for settlement functions. While it can hire or authorize outside help, it is ultimately responsible for the entire transaction. "It is the Bureau's position, therefore, that the title settlement agent's fiduciary responsibility cannot be transferred, delegated or substituted, and that there can only be one settlement agent
involved in the settlement or closing."
Some practical takeaways:
Can a Seller choose a separate settlement agency? Yes, if the buyer's settlement agency consents to assistance from the seller's agency. While a buyer's settlement agency cannot delegate its fiduciary duty for any part of a settlement, it can bring in outside help. So, it would be ok for the buyer's settlement agency to remain the sole fiduciary for the entire settlement process, but consent to the help of another agency. In that case, the seller's "settlement agent" would actually be "[an entity] to assist with performing certain administrative components of the settlement transaction, which the BOI opinion explicitly allows," rather than a second settlement agent.
Are Attorneys Affected By This Opinion? Yes. While the BOI does not regulate attorneys, the Virginia Code does. The BOI makes an opinion about the Virginia Real Estate Settlement Act, a law that regulates attorney settlements as well as lay settlement agents. The BOI believes that the law forbids more than one settlement agent from performing settlement services in a single transaction. Since the law does not make an exception for attorney settlement agents, multiple settlement agents in a single transaction applies to attorneys as well. So, while the BOI does not regulate lawyers, its opinion of the law may affect lawyers who conduct settlement services.
What should I do if I want to use a different settlement agency than the buyer? The seller's settlement agent should request permission from the buyer's settlement agency to perform a specific list of administrative and clerical functions. The buyer's settlement agency still has a fiduciary responsibility to both buyer and seller and must oversee any functions that another settlement agent performs. However, the BOI opinion does not forbid situations when the buyer's agency consents to administrative and clerical functions performed on behalf of the seller, even when they are done by a separate settlement agency.
-Aaron R. Pike Esq.
Pike Title has offices in Lynchburg and Roanoke, Virginia, and performs real estate title and closings in the surrounding counties. We have expert settlement agents ready to assist you for any specific questions or concerns you may have about your transaction.