CRESPA Controls When Selecting a Settlement Agent

As Virginia real estate licensees know, the Consumer Real Estate Settlement Protection Act (CRESPA) gives home buyers the right to select the settlement agent who will handle their transaction closing.

In most transactions, the buyers will select a settlement agent to undertake the preparatory work for both buyers and sellers. In performing such duties, the settlement agent is neutral and does not represent buyers or sellers.

But what happens when the sellers opt to use a different settlement agent for their part of the transaction? Who may the sellers hire?

CRESPA REQUIREMENTS
Prior to the enactment of CRESPA, real estate settlements in Virginia could only be handled by lawyers. When CRESPA was signed into law, non-lawyers were given the power to perform settlements. As a result, today in Virginia there are lawyer settlement agents, and lay (non-lawyer) settlement agents. To ensure public protection, CRESPA allows lay settlement agents to perform only enumerated settlement duties for the consumer, specifically excluding lay settlement agents from preparing legal documents affecting title to real estate (i.e. deeds, easements, etc.). Only lawyers can prepare such legal documents. 

A buyer can select a lawyer settlement agent or a lay settlement agent. The seller may elect to let the settlement agent selected by the buyer perform the work, or choose to be represented separately.

If the seller chooses separate representation, only a lawyer who is in private practice may be used. If the seller is not separately represented by a lawyer, the settlement agent selected by the buyer is obligated to make certain disclosures to the seller.

Specifically, the settlement agent selected by the buyer must advise the seller that:
1. By law, only lawyers in the private practice of law can represent sellers.
2. Non-lawyer settlement agents cannot represent sellers because non-lawyer settlement agents are not authorized to give legal advice or prepare legal documents affecting the title of property.
3. The buyer’s settlement agent cannot comply with any requests, or pay any fees, to a lay settlement agency attempting to represent the sellers.
4. Unless the sellers hire their own lawyer to represent them, or the sellers decide to represent themselves, the settlement agent selected by the buyer will do the work for both the buyers and sellers and charge them accordingly.

The buyer’s settlement agent must also advise the sellers of the settlement agent’s fees. These disclosures are mandatory.

SELLER'S BOTTOM LINE
A private settlement attorney is only required if sellers choose to be represented separately at closing. If both parties are using the settlement agent selected by the buyers, then that agent will perform the necessary settlement duties for all parties; neither party is represented individually. Seller agents should be familiar with the protections offered by CRESPA and help their clients understand its provisions. 

What is a Settlement Agent and Who Can Be One?

A Settlement Agent means any person, other than a "party to the real estate transaction," who provides "escrow, closing or settlement services" in Virginia in connection with a transaction involving real estate containing not more than four residential units. Only the following persons can legally provide "escrow, closing or settlement services" for such transactions in Virginia:
a. An attorney who is licensed by the Virginia Supreme Court and is an active member in good standing of the Virginia State Bar;
b. A title insurance company or title insurance agent (which may be a business entity) licensed by the State Corporation Commission;
c. A real estate broker licensed by the Virginia Real Estate Board;
d. A financial institution (or a subsidiary or affiliate thereof) authorized to do business in Virginia under Title 6.2 of the Code of Virginia, or under federal law, including state and national banks, state and federal savings institutions, trust companies, credit unions, state consumer finance companies and state industrial loan associations;
Source: Virginia State Bar