To help fix the problem of “delayed disbursements” in a real estate transaction, the VA code was amended in 1980 to require settlement agents to disburse funds within two days of closing. While there is more to this “Wet Settlement Act” than just disbursement, it helped pave the way to Virginia attorneys and title companies conduct settlements, recordings and disbursements.
Linda L. Butler at William & Mary Law School wrote a more scholarly article surrounding the Wet Settlement Act which provides important history. This blog will look at the practical implications of the Wet Settlement Act.
What is a real estate closing?
A real estate closing occurs when the seller has signed the deed conveying the property to the buyer, all parties have signed the final settlement statement, and the settlement company is in possession of all closing funds. If one of these items is missing, the deal is not closed.
What is a wet settlement and a dry settlement?
A wet settlement or wet closing is the term we use to describe the situation above. That all parties have executed appropriate closing documents and the settlement agent is in possession of all funds. At this point, the settlement agent is able to record the applicable deed and/or deed of trust. A dry settlement or closing occurs typically when documents have been signed but all funds are not accounted for. Dry settlements are not legal and can cause many problems. For instance, there is an appearance that the deal has officially closed and parties can make plans based on that fact, such as moving forward on a closing of a subsequent purchase.
What is involved in disbursing a closing?
Once a file properly closes, all funds are deposited in the firm escrow account. Typically, the next business day, our title examiner will record the deed and mortgage instrument and pay the appropriate recording fees to the city/county. The examiner will also perform a title update to insure no last minute liens or judgments were filed prior to closing. Once the deed is in line to be recorded, the settlement firm can start releasing and disbursing funds. As noted in the West Settlement Act, settlement companies have 48 hours to disburse but most of the time, this takes place within 24 hours or one business day.
What other role does a settlement agent play?
Not only is a settlement agent responsible for prepping appropriate closing documents for the buyer and seller and working with the lender to execute any loan documents, but the agent is also responsible for maintaining an escrow account and keeping impeccable records. Many buyers, sellers, and real estate agents don’t fully understand the fiduciary duty involved in being a settlement agent. Settlement agents act as stewards of millions of dollars of funds on a daily basis and that’s not to be taken lightly. If money doesn’t make it to the right place, the liability can quickly fall on the settlement agent. In addition, the proper documents have to be recorded with the local clerk’s office as mentioned above. The recordings serve as public notice that proper owners and lenders are all correct.