Commonwealth of Virginia's Wet Settlement Act and Same Day Flips

By
Real Estate Agent with Long & Foster REALTORS®, Gainesville, VA VA License # 0225089470
http://actvra.in/47GM

The Commonwealth of Virginia has a Wet Settlement Act.  What is of critical importance in the wet settlement act is the duty of the Settlement Agent.  Here is how the code defines the duty of the Settlement Agent:

The settlement agent shall cause recordation of the deed, the deed of trust, or mortgage, or other documents required to be recorded and shall cause disbursement of settlement proceeds within two business days of settlement. A settlement agent may not disburse any or all loan funds or other funds coming into its possession prior to the recordation of any instrument, except (i) funds received which are overpayments to be returned to the provider of such funds, (ii) funds necessary to effect the recordation of instruments, or (iii) funds which the provider has by separate written instrument directed to be disbursed prior to recordation of any instrument. Additionally, in any transaction involving the purchase or sale of an interest in residential real property, the settlement agent shall provide notification to the purchaser of the availability of owner's title insurance as required under � 38.2-4616.

When it comes to folks who would like to sell properties the same day they buy them, what this means is that if you are going to purchase Property in the Commonwealth of Virginia, you must pay for it yourself BEFORE you collect funds to sell it. 

You see, if B is going to buy a Property from A for $100,000, then sell it to C the same day for $150,000, B can not pay A using C's money.  That is a violation of the Wet Settlement Act.  Why?  C's money can not be disbursed until C's deed is recorded.  And you can't record C's deed unless B's deed was recorded.

Bottomline:  You have to use your own money to puchase real estate if conducting a same day flip.

For more information on Virginia's Wet Settlement Act, please click the link.

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Re-Bloggged 2 times:

Re-Blogged By Re-Blogged At
  1. Anne Clark 08/30/2010 10:38 PM
  2. Pat Fenn 08/30/2010 10:48 PM
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Topic:
Real Estate General Information
Location:
Virginia
Groups:
VA-RAIN
VIRGINIA
Virginia Foreclosures Short Sales and REO (and Pre-Foreclosures)
Tags:
virginias wet settlement act
flipping a property the same day you purchase in virginia

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Rainmaker
498,580
Susan Haughton, REALTOR Alexandria VA Homes for Sale

Great info for folks used to dry settlement states;  in Georgia, we even left settlement with checks for the brokers. 

August 28, 2010 12:27 PM
Ambassador
1,879,162
Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Susan:  Waiting a few days to get paid has never bothered me.  And after dealing with an undisclosed Short Sale Flip earlier in the year, I have a new appreciation for why this law exists. 

August 28, 2010 01:30 PM
Ambassador
746,167
Steve Shatsky
Dallas Real Estate & Short Sale Specialist (214)213-0340
Prudential Texas Properties

Hi Chris Ann... this is great information that has me rushing to check on my local laws regarding this.

August 28, 2010 02:25 PM
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1,879,162
Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Steve:  Once you know the laws, you'll know who does business appropriately and who doesn't.

August 28, 2010 05:06 PM
Rainmaker
117,447
Anne Clark
Metro Referrals

A great explanation of the Wet Settlement Act of Virginia.  Doing business here is not the same as doing business in other states.  There can be no nationwide approach to investment flips.

August 28, 2010 05:36 PM
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Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Anne:  Yes, despite the various schools of real estate investment, this practice is 100% illegal in the Commonwealth of Virginia. 

August 28, 2010 05:50 PM
Rainmaker
1,108,089
Jim Frimmer
Realtor & CDPE, Mission Valley specialist
HomeSmart Realty West

I had no idea that anyone would even want to do that. Why doesn't C just buy it from A to begin with?

August 29, 2010 01:18 PM
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Cindy Jones
Pentagon, Fort Belvoir & Quantico Real Estate News
Integrity Real Estate Group

Goes along with the investigations of "flopping" by our local FBI office.  I do believe we will see some indictments of agents in the future for their roles in some of these deals.

August 29, 2010 06:35 PM
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Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Jim:  Because greedy B put themselves in the middle and needs to make some money.

August 29, 2010 07:05 PM
Ambassador
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Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Cindy:  I can only hope that we will see those indictments in the near future.  Settlement companies, agents and investors will be going down when those are handed out.

August 29, 2010 07:09 PM
Rainer
70,290
Donald Tepper
Long and Foster

Hold on a minute, everyone. 

First--fine--the intermediary can't use the funds from the ultimate purchaser to pay for the initial purchase. But where does it say that "You have to use your own money to puchase real estate if conducting a same day flip." You have to use someone's money, but it doesn't have to be your own. There are plenty of transactional lenders out there who'll lend the money for 24 hours for perhaps 2 points. Expensive? Perhaps. But It's not "your own money." That's a valid distinction.

Second, Jim asks: "Why doesn't C just buy it from A to begin with?" Valid question. But the answer ("greedy B put themselves in the middle and needs to make some money") doesn't really address the question. Why not: "C didn't find the deal. C didn't negotiate the deal. C didn't realize it was a deal. Without B, A wouldn't have sold the property [to C] and C wouldn't have bought it [from A]. B put the deal together and deserves to earn a profit from it.

Gee, why don't all the buyers out there just buy directly from the sellers? And why don't all the sellers out there just sell FSBO? Would you answer "Greedy Realtors put themselves in the middle and need to make some money?" Somehow, I don't think so. Someone who adds value to the process--whether it's a Realtor or an investor--deserves compensation.

Something to think about.

August 30, 2010 11:05 PM
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Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Donald:  If an investor is giving you money, I would consider that, for the purposes of the conversation the investor's own money.  The money a buyer brings to the table ultimately isn't their own money either if they are getting a loan, it's the bank's money, but it is what they are using to fund their transaction.

This is a bookmark post for a series I'm doing on a Short Sale Flip.  I suggest you read that to see where all this is going.  There are too many investors out there right now with inside folks at banks who are "working deals."  Problem is, the banks aren't protecting their investors and when reported to the proper authorities, the transactions come to a halt.

I see you are a Long & Foster agent.  Long & Foster's attorneys were consulted during my transaction which involved a same day short sale flip.  They were cringing over the violations to the Wet Settlement Act that nearly took place and the non-disclosure of the nature of the flip.  It's fraud.

August 31, 2010 10:15 AM
Rainmaker
238,853
Gene Allen
Realtor Hampton Roads Real Estate
Resh Realty Group

Haven't had that happen yet but on some of the transactions I can feel it going on.

September 05, 2010 08:23 PM
Ambassador
1,879,162
Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Gene:  I know what you're talking about.

September 05, 2010 09:40 PM
Anonymous #15
Anonymous
Chris Burton

As an avid SS Flipper, I NEVER do this!  (the way your blog describes it).

I tell A from day one, in my Purchase Agreement, that I intend to flip for profit.

And the bank rec's this offer for their review.

I use Transactional Funding (extremely short term hard money loan, 3-30 days).

I close, in my own name, with my OWN $, and take title free and clear.

Then, immediately thereafter, I re-sell to C, and they use THEIR own funds to close B to C.

It's a flip for sure, but fully disclosed from day one, to all parties.

The RIGHT way to flip SS these days.

In the light, full disclosure, early and often!

Just some thoughts to add to you knowledge-bank.

Thanks for the great BLOG.

February 25, 2011 03:01 AM
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Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

Chris:  It's great to hear that there is still someone out there that knows you can make money and still be 100% above board.  Thanks for the comment.

February 25, 2011 10:27 AM
Anonymous #17
Anonymous
wiliam evans

Your facts are completely wrong. of course someone can buy and sell (flip) the same day and not use ones own funds. I have conducted many such closings. The "wet settlement act" only applies if you are dealing with a bank loan. additionally, the act says you can't disburse until you record the deed it does not say you can't record the deed before you have the funds.

July 29, 2011 02:42 PM
Ambassador
1,879,162
Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA

William:  I would suggest you consult with an attorney.

July 30, 2011 01:19 PM
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Chris Ann Cleland

Associate Broker, Northern VA
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