Can a closing attorney disburse builder's proceeds and a construction-loan payoff before the lender's deed of trust is recorded, if the lender consents?

Plain-English summary

A closing attorney asked whether he could disburse a builder's proceeds and the builder's construction-loan payoff before the lender's deed of trust was recorded. The lender, because of a familial relationship with the builder, would consent to disbursement before recordation, and both lender and builder had agreed to take "whatever remedial steps are necessary" on the outsale mortgage and closing to protect buyers if a title defect were found at recordation.

The committee quoted Virginia Code Section 6.1-2.13: "A settlement agent may not disburse any or all loan funds prior to the recordation of any instrument." It opined that, on those facts, it would be improper to disburse the builder's proceeds and the builder's construction-loan payoff before recordation of the lender's deed of trust.

Currency note

This opinion was issued in 1988, before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000, and it turns on a specific statutory provision (Virginia Code Section 6.1-2.13) that may since have been amended or recodified. Subsequent rule or statutory amendments and later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules and the current statute before relying on any specific requirement mentioned here.

Common questions

Q: Can a settlement agent disburse loan funds before the deed of trust is recorded?

A: Under this 1988 opinion, no. The committee read Virginia Code 6.1-2.13 to bar a settlement agent from disbursing loan funds prior to recordation of any instrument.

Q: Does the lender's consent change the result?

A: The committee did not treat the lender's consent (or the parties' agreement to take remedial steps) as permitting pre-recordation disbursement; it opined the disbursement would be improper.

Background and rules framework

The opinion turned on a Virginia statute, Code Section 6.1-2.13, prohibiting a settlement agent from disbursing loan funds before recordation, rather than on a specific Disciplinary Rule. (Virginia's settlement-disbursement requirements have since been recodified; verify the current statute.)

Citations and references

Statutes:

• Virginia Code Section 6.1-2.13 (settlement agent may not disburse loan funds prior to recordation).

See also

• No sibling opinions yet indexed.

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1116.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Committee Opinion
July 6, 1988
LEGAL ETHICS OPINION 1116

REAL ESTATE: DISBURSEMENT OF
PROCEEDS PRIOR TO RECORDATION
OF LENDER’S DEED OF TRUST.

You wish to know whether a closing attorney may disburse builder's proceeds and
builder's construction loan payoff prior to recordation of the lender's deed of trust.
Lender, because of its familial relationship with builder, would consent to the
disbursement of settlement proceeds prior to the recordation. You advised that both the
lender and builder have agreed to take "whatever remedial steps are necessary" with
regard to the outsale mortgage and/or closing to protect buyers in the event a title
defect is found at the time of recordation.
Virginia Code § 6.1-2.13 provides "A settlement agent may not disburse any or all loan
funds prior to the recordation of any instrument." The Committee opines that it would be
improper to disburse the builder's proceeds and the builder's construction loan payoff
prior to the recordation of the lender's deed of trust.
Committee Opinion
July 6, 1988