LEO: Escrow Account - Disbursement of Funds LE Op. 813

 

Escrow Account - Disbursement of Funds.

 

October 14, 1986

 

Subject: Disbursement of funds in a real estate transaction prior to the

time that a perfected lien is established for the lender of the funds.

 

Conclusions: DR:9-102 establishes what funds must go into an escrow

account and the conditions for withdrawing funds from the account.

Disciplinary Rule 9-102(B)(4) establishes an affirmative duty to pay funds

to a party when the party is entitled to the funds and implicitly

prohibits the payment of funds from an escrow account to a party who is

not entitled or not yet entitled to the funds.

 

Disciplinary Rule 9-102 applies to all real estate closings in which

funds are deposited with the attorney for distribution. However, in order

to determine whether the implicit prohibition of DR:9-102(B)(4) prevents

or delays the disbursement of funds in any particular transaction, it is

necessary to determine if the person to whom funds are to be tendered is

legally entitled to receive the funds at the time of the tender. This may

vary from case to case and is a legal question. It would appear that the

primary consideration for determining when a person is entitled to funds

in a real estate transaction would be the understanding, agreements and

contracts among and between the attorneys, the seller, the lawyer, and the

lender. If, for example, all of these parties had agreed that all funds

may be disbursed at a time prior to the recordation of the deeds and the

establishment of a priority lien for the lender, then disbursement at the

agreed time would not be prohibited by DR:9-102(B)(4) [ DR:9-102]. On

the other hand, if all parties direct the attorney not to disburse funds

until after recordation of the deed, and the establishment of a priority

lien for the lender, then DR:9-102(B)(4) would prohibit disbursement

until the agreed upon time. In all situations, the attorney must determine

whose funds he is holding and at what point in time other persons become

legally entitled to the funds. In other words, the attorney simply must

comply with the requirements placed upon him by the owner(s) of the funds

which are placed in the escrow account.

 

LE Op. 663 is applicable to a situation in which the buyer has agreed

to the disbursement of funds only upon recordation of the deed and the

lender's funds have been deposited in the attorney's escrow account with

the unconditional directions to the attorney not to release the funds

prior to the establishment of a perfected lien position. The time at which

funds may be disbursed pursuant to DR:9-102(B)(4) [ DR:9-102] depends

on facts which may vary from case to case. If the relevant facts differ

from the situation addressed in LE Op. 663, that opinion may not be

applicable. Section 17-79, Va. Code, requires that all deeds admitted to

record be indexed daily. In a situation where a clerk's office utilizes a

monitor viewer and on a particular day is unable to index on that system

some 13 days worth of deeds that have come in, the committee opines that a

solution to the problem is beyond the committee's purview. In this

situation, the committee feels that it may be appropriate for the closing

attorney to explain the situation to the seller. Normally, a sale is

contingent upon good title and hopefully most sellers would appreciate

that any delay might be for the benefit of the seller as well as the

buyer.

 

The committee opines that whether or not an attorney faced with a delay

of one to three weeks is obligated to hold the settlement proceeds in an

interest-bearing escrow account is a legal question outside the purview of

the committee. The committee feels it cannot go beyond advising that the

parties having a potential interest in the funds should receive an

explanation of the required delay and should be enabled to direct the

closing attorney. The closing attorney has the right to charge the proper

party should there be extra time and trouble involved, provided that the

closing attorney makes proper disclosure with regard to any additional

charge ahead of time. [ DR:9-102, LE Op. 663, 17-79, Code of

Virginia]

 

Committee Opinion October 14, 1986

 

CROSS REFERENCES

 

See also LE Op. 900.