Disbursement instructions to closing agents come in all shapes and sizes, but they all have one thing in common. Each involves a specific direction to the closing agent to disburse the funds entrusted to the closing agent precisely as instructed. The most common form of disbursement instructions involve the settlement statement itself (which is executed by the buyer and the seller to the transaction). It is important to understand that closing agents have no flexibility to disburse funds other than as strictly instructed by the buyer, the seller, the lender, and the broker. And yet this remains a common request.
The most common example involves the direction to make a payment to one or more parties that is not contemplated by the settlement statement. For example, the seller wants their funds to go to a person or entity that is not a party to the settlement statement, or one or more parties wants a payment or fee to be paid that is not reflected on the settlement statement. Those requests may seem harmless, but they put the closing agent in a very difficult position. Remember, the settlement statement itself is a joint written direction by the buyer and the seller to disburse their funds in strict accordance with the settlement statement. The closing agent has no flexibility here. To disburse otherwise would run afoul of that direction, and constitute a breach of the fiduciary duty that the closing agent has to both the buyer and the seller to comply with their joint written direction as to how their funds are to be handled.
And, if the transaction is financed, the settlement statement is approved by the lender, at which time the closing agent also has a fiduciary duty to the lender to disburse its funds precisely in accordance with the settlement statement that the lender has reviewed and approved. To do otherwise could carry stiff penalties under federal law (remember all of those people who went to jail for making payments “off the HUD” or because they were generating two closing statements in an effort to deceive the lender).
When your closing agent reminds you that s/he can only disburse the parties’ funds in accordance with the settlement statement, the closing agent is doing so for everyone’s protection. So you ask, what happens if I need to request a payment that is not contemplated by the settlement statement? The simple answer is that the settlement statement needs to be revised and approved by all parties. And yes we do understand that can be difficult on the eve of closing when the settlement statement has already been blessed by the lender. But,if you don’t look good in orange, play it safe and revise the settlement statement. As always, if you have any questions, please consult your real estate lawyer.
Berlin Patten Ebling, PLLC
Article Authored by Evan Berlin, Esq., email@example.com
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