Disbursements to Sellers
Presented by Hayden-Anne Breedlove
FACTS: Real estate is owned by trustees of a revocable trust who were also the beneficiaries of the trust. Trustees want the proceeds paid to the account of the wife (individually, although she is a co-trustee), but there is no trust account established nor do they have a joint bank account of any kind.
Q: Can the settlement agent pay the funds as directed by the seller trustees to the wife individually?
A: Technically, this is a settlement issue rather than a title issue, but it's one that is often asked. We suggest agents disburse according to the CD and settlement statement. Under RESPA, the HUD-a settlement statement is intended to reflect the actual charges and disbursements made in the transaction. Specifically, 12 C.F.R. § 1024.8(b) provides that the settlement agent must state the "actual charges paid" by the borrower and seller on the HUD-1.
The Code of Virginia § 55.1-903 requires disbursements be made within two business days of settlement or receipt of funds. Section 55.1-900 defines "disbursement of settlement proceeds" to mean "the payment of all proceeds of the transaction by the settlement agent to the persons entitled to such proceeds." The Title Insurance section of the Virginia Bureau of Insurance interprets this as disbursing to the named sellers on the CD. Those documents show the trustees of the trust as the sellers. Payment should be made to them, as trustees.
Alternatives:
1) Pay by paper check rather than wire. The trustees can endorse the check to the wife and she can deposit it in her account.
2) Deed the property from the trust to the parties as individuals. If they are a married couple, they can take as tenants by the entirety to protect against judgments against either of them individually. Then, they, as individuals, can sell the real estate. They would need a joint account for proceeds to be wired, or would need to use the paper check option above.
This is distinguished from cases where proceeds are paid by letter of assignment to another settlement service provider. In that case, the funds are being paid to a third party in escrow for the benefit of the seller in the transaction you are handling. That is an acceptable disbursement of funds.