'Wet' and 'Dry' Settlements, and the Law
Q: My wife and I recently bought a house, which coincided with the sale of our townhouse. I have a real estate license and functioned as the seller's agent. When we went to settlement, we encountered multiple problems stemming from the settlement agent's desire to conduct a "dry settlement" as opposed to a "wet settlement." The issues were finally resolved after about six hours. However, because of these delays, we had to pay our movers overtime. We have attempted to get the settlement company to reimburse us for the extra money its delay cost us, but to no avail.
Is there any way short of going to small-claims court to get this matter resolved?
A: I think you will have to go to court, if that is really what you want to do.
Your first mistake was to schedule the sale of your house for the same day that you bought your new property.
I recognize that this is done all the time, and usually everything works out. But there are often "glitches" in the settlement process -- the appraiser has not finished the appraisal; the credit report is shaky and the lender's underwriter needs more financial information, or the title report reveals some issues that have to be resolved.
Your best approach is usually to sell your house first, and have your buyer agree to let you stay in the house for a few days. You will sign a "post-occupancy agreement," and will have to pay the buyer money for the days in which you stay in his house. Typically, sellers pay for principal, interest, taxes and insurance, or PITI. Your buyer will have to start paying a mortgage on the house he just bought, so it is only fair that you reimburse the buyer for the time that you will continue to reside in his new house.
This should not be a problem for you. Keep in mind that you no longer have to pay this PITI on your old house, and you also will have all of the sales proceeds at your disposal.
You referred to a "wet settlement." This is a term of art that means that when a person goes to settlement, the lender's funds must be on the table.
Compare this to a "dry settlement," in which there is no money available at the closing. Usually, the settlement company or attorney will complete the paperwork, send the legal documents to the lender for review, and then the lender will fund the transaction.
As you can appreciate, the latter approach can cause a long delay before the seller will get his money. This will also cause the seller to pay additional interest on his loan, because the loan will continue to accrue interest until the lender is paid in full.
Many jurisdictions, including Maryland, Virginia and the District, have enacted "wet settlement" acts. The laws differ from state to state.
For example, in Virginia, the Wet Settlement Act requires, among other things, that the settlement agent disburse all funds within two business days after all the funds are collected and deposited in the settlement company's trust account.
In the District, on the other hand, the settlement attorney must disburse all funds within one business day after the closing takes place. If there are legitimate reasons for delay, not caused by the settlement agent, full disclosure must be provided to the seller.
In Maryland, the emphasis is on the lender, and not the settlement agent. Lenders must fund a residential settlement no later than the day that closing takes place. Presumably, this will not give the settlement company any excuses not to promptly disburse all settlement proceeds.
From the facts that you told me, I am not sure that your settlement attorney was in violation of any applicable wet settlement act. You did get your money on the same day that closing took place -- albeit several hours later.
It is your call: Do you really want to spend your time going to small-claims court? You may have to wait around all day, and indeed your case may not even be called on the scheduled date and will have to be postponed.
Is it really worth it?
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.