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Virginia SCC Releases Opinion on Split Settlements


On February 4, 2022, the Virginia Bureau of Insurance issued a bulletin regarding so-called "Split Settlements." Your associations are seeking further guidance and clarification on this issue and will provide an update as soon as one is available. This is just a clarification of existing law and will not necessitate any change in the NVAR Residential Sales Contract. In the meantime, here is what you need to know regarding the selection of Settlement Agents and the current state of the law:

Q. Split Settlements – What is a Settlement Agent? 

The Virginia Code defines a “Settlement Agent” as “a person, other than a party to the real estate transaction, that provides escrow, closing, or settlement services in connection with a transaction related to real estate in the Commonwealth and that is listed as the settlement agent on the settlement statement or closing disclosure for such transaction.” VA Code § 55.1-1000.  

Sometimes Settlement Agents are attorneys. However, they are not required to be lawyers. Settlement Agents can include those individuals that are: 

  1. Licensed as an attorney;
  2. Licensed as a title insurance company;
  3. Licensed as a title insurance and appointed by a title insurance company licensed in the Commonwealth.
  4. Licensed as a real estate broker;
  5. A financial institution authorized to do business in the Commonwealth or under federal law; or
  6. A subsidiary or affiliate of a financial institution described in #5. 

Q. Who gets to choose the “Settlement Agent”?  

Under Virginia law, the buyer has the exclusive right to choose the Settlement Agent involved with the transaction. Va Code § 55.1-1006. The seller cannot require the use of a particular settlement agent as a condition of the sale of the property. Va Code § 55.1-1006.  

Q: What is a Split Settlement? 

A so-called “split settlement” occurs when the escrow, closing, or settlement services for which the Settlement Agent is responsible is shared or divided between two or more individuals.

Split settlements are not authorized in Virginia. Virginia Code clearly authorizes the buyer to select the Settlement Agent that is to provide the mandated services in connection with the transaction. VA Code § 55.1-1006. The seller cannot require the use of any particular Settlement Agent for that transaction. The Virginia Code repeatedly makes reference to “the Settlement Agent,” indicating that there can only be one singular Settlement Agent. See Va Code §§ 55.1-900, 55.1-902, 55.1-907, 55.1-903, 55.1-1000, 55.1-1006, 55.1-1007, 55.1-1008, and 55.1-1011. In February of 2022, the Virginia Bureau of Insurance, which regulates the title insurance companies and title insurance agents, issued a bulletin explaining 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.” 

Moreover, Section 55.1-1008 of the Virginia Code requires that "[a]ll funds deposited with the settlement agent in connection with escrow, settlement, or closing shall be handled in a fiduciary capacity." The Virginia Bureau of Insurance has also issued guidance indicating that the Settlement Agent’s fiduciary responsibility cannot be assigned or substituted, and that, as such, there can only be one designated Settlement Agent.   

Q: What if the Seller Wants to Close with a Different Settlement Agent? 

Occasionally, there are transactions in which the seller may wish to have representation separate from the services provided by the Settlement Agent. In those cases, the seller must retain legal representation, not a lay settlement agent or agency to assist with the performance of those services. All individuals are entitled to representation of counsel under state and federal law, and attorneys are not subject to regulation by the Bureau of Insurance. 

Q. Will the Seller be charged fees by both the Settlement Agent and legal counsel if they seek representation? 

It is important to note that a “settlement agent shall not charge duplicative or padded fees for escrow, closing, or settlement services.” 14VAC395-75(A)(4). Therefore, if the seller chooses to retain counsel, the Settlement Agent cannot charge extra fees for services that were not actually rendered by the Settlement Agent or for services that were performed by the seller's attorney.  

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