Can a settlement attorney for a borrower hand original closing documents or the promissory note to the lender before the borrower's three-day right to rescind has run?
Apply this to your situation
This page answers the general question as of 1993. Ezel answers yours: whether it's allowed on your facts, under the current Virginia Rules of Professional Conduct, with citations.
Plain-English summary
A law firm retained by borrowers to handle the refinance of their principal residence received an agreement from the lender that the attorney had to sign before closing. One condition required all closing documents to be returned to the lender within 24 hours of the settlement date, including for refinances. Refusing to sign the agreement would prevent the attorney from conducting the closing, while signing it and then failing to supply the documents would subject the attorney to a daily fine and denial of funding. The committee was asked whether it is unethical for a settlement attorney representing a borrower in a refinance to surrender the original closing documents, or the original promissory note, to the lender before the borrower's three-day right to rescind has run.
The committee determined that the issues raised call for an interpretation of the Truth-in-Lending Act (15 U.S.C. § 1601 et seq.) and the Wet Settlement Act (Va. Code § 6.1-2.10 et seq.). Because resolving them requires a legal determination beyond the committee's purview, the committee declined to opine on whether the described conduct is ethical.
Currency note
This opinion was issued in 1993, under Virginia's former Code of Professional Responsibility, before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. The committee declined to reach the ethics question, and the statutes it referenced may since have been amended or recodified. Treat this page as historical context, not current guidance. Verify against current rules and the current versions of the cited statutes before relying on anything mentioned here.
Common questions
Q: Did the committee say whether an attorney can give closing documents to the lender before the rescission period ends?
A: No. The committee declined to decide, concluding the question turns on interpreting the federal Truth-in-Lending Act and the Virginia Wet Settlement Act, which is a legal determination beyond its purview.
Q: Why did the committee decline to answer?
A: Because the inquiry required interpreting statutes (the Truth-in-Lending Act and the Wet Settlement Act) rather than applying the Code of Professional Responsibility, the committee treated it as a legal question outside its authority.
Background and rules framework
The committee framed the inquiry as turning on statutory interpretation rather than a disciplinary rule: the federal Truth-in-Lending Act (15 U.S.C. § 1601 et seq.), which provides the three-day right of rescission in certain consumer credit transactions, and Virginia's Wet Settlement Act (Va. Code § 6.1-2.10 et seq.), governing the disbursement of settlement funds. Because it interpreted no professional-conduct rule, no Model Rule analog is identified.
Citations and references
Statutes:
- Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. (three-day right of rescission).
- Wet Settlement Act, Va. Code § 6.1-2.10 et seq. (disbursement of settlement funds).
See also
Source
- Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
- Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1565.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
Committee Opinion
December 14, 1993
LEGAL ETHICS OPINION 1565
ATTORNEY'S COMPLIANCE WITH
LENDER'S INSTRUCTIONS WHICH
MAY CONTRADICT WET
SETTLEMENT ACT AND FEDERAL
CONSUMER LAW.
You have presented a hypothetical situation in which a law firm has been retained by
borrowers to represent them in the handling of a refinance of their principal residence.
The lending institution which the borrowers/clients have selected forwards the attorney's
office an agreement which must be signed by the attorney prior to closing. One of
the conditions of the agreement is that all closing documents are to be returned to the
lender within 24 hours of the settlement date. This condition applies to refinances. You
state that failure to sign the agreement prevents the attorney from conducting the closing.
Finally, you also state that signing the agreement and failing to supply the closing
documents subjects the attorney to a daily fine imposed by the lender, as well as denial of
funding.
You have asked the committee to opine, under the facts of the inquiry, (1) whether it is
unethical for a settlement attorney who represents a borrower in a refinance to surrender
original closing documents to the lender prior to the borrower's three-day right to rescind
having run; and (2) whether it is unethical for a settlement attorney who represents a
borrower in a refinance to surrender the original promissory note to the lender prior to the
borrower's three-day right to rescind having run.
The committee has considered your inquiry and determined that the issues raised call
for an interpretation of the Truth-in-Lending Act (15 U.S.C. § 1601 et seq.) as well as the
Wet Settlement Act (Va. Code § 6.1-2.10 et seq.) and thus present a legal issue the
resolution of which requires a determination beyond the purview of the committee.
Committee Opinion
December 14, 1993
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