Under Virginia's Wet Settlement Act, when may a settlement attorney disburse funds, and what happens when lender instructions conflict with the Act?

Plain-English summary

The committee addressed a settlement attorney's disbursement duties under the Wet Settlement Act. It opined that it is not improper for an attorney to distribute funds after delivery of a deed or deed of trust to the clerk's office, so long as some type of written receipt or proof of delivery is received, and it noted that an attorney might arrange a form that could be stamped at the clerk's office as proof of delivery. It observed that the certification of the priority of a deed of trust is not required under the Act but may be required by a lender's instructions.

The committee opined that, provided the instructions of the attorney's principal are lawful, the attorney has a duty to comply with them; if it is impractical to follow them, the attorney must notify the lender or principal. The attorney also has a duty to comply with the Wet Settlement Act, and to the extent the principal's instructions would require the attorney to breach the Act, the attorney must advise the principal and comply with the Act. It said it is improper for an attorney to disregard a lender's instruction not to disburse until the attorney can certify a perfected first lien subject only to current taxes, easements, and permitted encumbrances, but that if following that instruction would require noncompliance with the Act, the attorney must advise the principal that there is no practical way to meet the Act's requirements absent revised instructions.

The committee said "table disbursements" are a matter of ethics, and that an attorney is not released from ethical conduct because the attorney is covered by "insured closing services" provided by title insurers guaranteeing reimbursement for a failure to record. Where such protection exists, the committee suggested the attorney present it to the lender principal and obtain revision of instructions that would require noncompliance with the Act. The committee added that passage of amended Senate Bill 536 may revise or moot the opinion.

Currency note

This opinion was issued in 1987, 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 opinion itself notes that amended Senate Bill 536 may revise or moot it, and the statutes it construes have been recodified. Subsequent rule amendments, statutory changes, or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: When may a settlement attorney disburse funds under the Wet Settlement Act?

A: Under this 1987 opinion, after delivery of the deed or deed of trust to the clerk's office, so long as the attorney receives written proof of delivery.

Q: What if a lender's instructions conflict with the Wet Settlement Act?

A: The committee opined that the attorney must comply with the Act and advise the principal, because following instructions that would require breaching the Act is not permitted; the attorney must seek revised instructions.

Q: Does insured-closing-services coverage relieve the attorney of ethical duties?

A: No. The committee said such coverage does not release the attorney from ethical conduct, and suggested the attorney use it to obtain revised lender instructions.

Background and rules framework

The opinion did not cite a specific disciplinary rule. It analyzed the settlement attorney's duties to a principal and to comply with the Wet Settlement Act, codified at the time in Va. Code §§ 6.1-2.13 and 17-79, and referred to LE Op. 813.

Citations and references

Statutes:

• Va. Code § 6.1-2.13 (Wet Settlement Act)
• Va. Code § 17-79 (recordation; clerk's office)

Other opinions cited:

• LE Op. 813: cited on settlement disbursement

See also

• VA LEO 1116: Disbursement of Proceeds Before Recordation
• VA LEO 1466: Wet Settlement Act and the Form of Funds
• VA LEO 1255: Wet Settlement Act Waiver and Disbursing Uncollected Items

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/0900.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Committee Opinion
March 17, 1987
LEGAL ETHICS OPINION 900

REAL ESTATE – WET SETTLEMENT
ACT.

Under the Wet Settlement Act, it is not improper for an attorney to distribute funds after delivery of a deed or a deed of trust to the clerk's office as long as some type of written receipt or proof is received. As a practical matter, an attorney might arrange for a form to be used which sets forth the particulars of a given instrument and could be stamped at the clerk's office as proof of delivery of the instrument(s) described therein. However, such instructions or requirements as imposed on the attorney by the borrower or lender might involve far more than is contained in the act. The certification of the priority of a deed of trust is not required under the act, but may be required by the instructions of the lender. Provided the instructions of the principal of the attorney are lawful, the attorney has a duty to comply with the instructions. Should it be impractical to follow the principal's instructions, the attorney has a duty to notify the lender or principal. The attorney has a duty to comply with the terms of the Wet Settlement Act and to the extent that the instructions of the attorney's principal would necessitate the attorney breaching the act, the attorney must advise the principal and comply with the act. It is improper for an attorney to disregard instructions by a lender not to disburse until the attorney can certify that the lender has a perfected first lien against the security subject only to current taxes, easements and other permitted encumbrances. If, however, following this instruction would necessitate noncompliance by the attorney with the Wet Settlement Act, the attorney must advise the principal or lender that there is no practical manner by which the legal requirements of the Wet Settlement Act may be met absent the principal or lender revising the instructions. "Table disbursements" are a matter of ethics. An attorney is not released from ethical conduct because the attorney is covered by "insured closing services" coverage provided by title insurers which guarantee reimbursement of any loss arising from the attorney's failure to record. If it is assumed that an attorney has provided protection against loss of any funds by any party to the transaction as a result of any conduct by the attorney, the committee suggests that the attorney present such to the lender principal and obtain revision of the instructions which would require noncompliance with the Wet Settlement Act. The passage of amended Senate Bill 536 may revise or moot this opinion. [LE Op. 813; Code of Virginia §§ 6.1-2.13 and 17-79] Committee Opinion March 17, 1987