1.26 Attorneys as Settlement Agents in Consumer Transactions; Virginia State Bar Disciplinary Actions

• Library: Real Estate Transactions in Virginia (Virginia CLE) (2019 Ed.)

1.26 ATTORNEYS AS SETTLEMENT AGENTS IN CONSUMER TRANSACTIONS; VIRGINIA STATE BAR DISCIPLINARY ACTIONS

1.2601 Registration as Settlement Agent. ³¹⁶ The legislative acts formerly known as CRESPA (Consumer Real Estate Settlement Protection Act) ³¹⁷ and the Wet Settlement Act ³¹⁸ have been restructured and their provisions recodified as Chapters 9 (Real Estate Settlements) and 10 (Real Estate Settlement Agents) of Title 55.1 of the Code of Virginia. ³¹⁹ The statutes require that any attorney who wishes to close residential real estate

[Page 61]

loans in Virginia register with the Virginia State Bar (the Bar) as a "settlement agent." ³²⁰ Each licensed Virginia attorney who conducts a settlement service is required to register—the single registration of a law firm is not permitted. ³²¹ Section 55.1-1014 of the Virginia Code specifically confers on the Bar the power to continue to regulate the unauthorized practice of law. In addition to the civil penalties contained in these statutes, if a non-lawyer employee of the law firm commits an act or acts constituting the unauthorized practice of law, he or she may be guilty of a class one misdemeanor and may be fined up to $2,500 and imprisoned for up to 12 months. ³²² An attorney settlement agent cannot, of course, be found guilty of the unauthorized practice of law, but unless the attorney is "engaged in the private practice of law in Virginia and . . . has been retained or engaged by a party to the transaction for the purpose of providing legal services to that party," the attorney settlement agent is prohibited from providing legal advice to the parties. ³²³

1.2602 Definition of Settlement Agent. "Settlement agent" means a person other than a party to a Virginia real estate transaction who provides escrow, closing, or settlement services in connection with the transaction and who is listed as the settlement agent on the settlement statement for the transaction. Any person, other than a party to the transaction, who conducts the settlement conference and receives or handles money is deemed a "settlement agent" subject to the applicable statutory requirements. ³²⁴

1.2603 Transactions to Which Chapter 10 Applies. The requirements apply "only to transactions involving the purchase of or lending on the security of real estate located in this Commonwealth containing not more than four residential dwelling units." ³²⁵ Chapter 10 does not apply to commercial real estate transactions or closings on unimproved lots. In addition, if a person is a "party to the transaction," he or she may perform the closing without meeting the Virginia Code requirements of a settlement

[Page 62]

agent. ³²⁶ A "'party to the real estate transaction' means with respect to that real estate transaction, a lender, seller, purchaser or borrower, and with respect to a corporate purchaser, any entity which is a subsidiary of or under common ownership with that corporate purchaser." ³²⁷

"Any person, other than a party to the transaction, who conducts the settlement conference and receives or handles money shall be deemed a 'settlement agent' subject to the applicable requirements of this chapter." ³²⁸ However, licensed real estate brokers, agents, or employees of these professionals may perform escrow, closing, or settlement services to facilitate a settlement in which the broker or agent is involved without registering as a settlement agent as long as they are not named as settlement agents in the transaction. ³²⁹

Moreover, a lawyer or non-lawyer may perform specific tasks related to a closing without registering as a settlement agent, provided that he or she is not the designated settlement agent or handling the settlement funds. For example, a lawyer may draw a deed on behalf of a seller for a transaction in which the lawyer is not serving as the settlement agent, and a title agent may do title work and issue a title binder for a closing without registering as a settlement agent with the Bar.

1.2604 Disclosure Requirements. All contracts involving the purchase of real estate containing not more than four residential dwelling units in the commonwealth must include the following statement in boldface, 10-point type or larger:

Choice of Settlement Agent: Chapter 10 (§ 55.1-1000 et seq.) of Title 55.1 of the Code of Virginia provides that the purchaser or borrower has the right to select a settlement agent to handle the closing of this transaction. The settlement agent's role in closing your transaction involves the coordination of numerous administrative and clerical functions relating to the collection of documents and the collection and disbursement of funds required to carry out the

[Page 63]

terms of the contract between the parties. If part of the purchase price is financed, the lender for the purchaser will instruct the settlement agent as to the signing and recording of loan documents and the disbursement of loan proceeds. No settlement agent can provide legal advice to any party to the transaction except a settlement agent who is engaged in the private practice of law in Virginia and who has been retained or engaged by a party to the transaction for the purpose of providing legal services to that party.

Variation by agreement: The provisions of Chapter 10 (§ 55.1-1000 et seq.) of Title 55.1 of the Code of Virginia may not be varied by agreement, and rights conferred by this chapter may not be waived. The seller may not require the use of a particular settlement agent as a condition of the sale of the property.

Escrow, closing, and settlement service guidelines: The Virginia State Bar issues guidelines to help settlement agents avoid and prevent the unauthorized practice of law in connection with furnishing escrow, settlement or closing services. As a party to a real estate transaction, the purchaser or borrower is entitled to receive a copy of these guidelines from his settlement agent, upon request, in accordance with the provisions of Chapter 10 (§ 55.1-1000 et seq.) of Title 55.1 of the Code of Virginia. ³³⁰

All settlement agents are required by statute to exercise reasonable care in their capacity as settlement agents. However, attorney settlement agents should not assume that the "reasonable care" standard applies to them. Generally, attorneys continue to be held to a higher standard of care based upon their legal and ethical duties to their clients. These standards for attorneys were not superseded by the registration statutes.

[Page 64]

An attorney settlement agent should prepare a written engagement letter for settlement services. If it is customary in a region for a single settlement agent to work for both parties, a multiple representation engagement letter should be sent to each client as early in the representation as possible, and the multiple representation should be agreed to by all of the parties. ³³¹

Attorneys who work for nonattorney settlement companies are not authorized to provide legal advice to the parties to a transaction. Giving such advice will be considered (i) the unauthorized practice of law by the nonattorney settlement company; (ii) a violation of Chapter 10 of Title 55.1 by the attorney and the nonattorney settlement company; and (iii)...