Like its sister states, North Carolina and South Carolina, Georgia has long been an “attorney state” when it comes to closing residential real estate transactions. And in this year’s legislative session two new laws were passed putting Georgia more in line with its neighbors.
Georgia has a long tradition which requires that attorneys close residential real estate transactions. This tradition is founded in statutory and case law, as well as the rules of the State Bar of Georgia. Recent years have seen the influx of corporate settlement companies into the state, similar to recent practices in South Carolina and North Carolina. Senate Bills 365 and 331 passed into law this year will greatly limit the ability for non-attorneys to conduct or even participate in the closing a residential real estate transaction in this state.
Senate Bill 365 revised O.C.G.A. § 44-14-13, the Georgia Good Funds Act. The previous version of The Good Funds Law was enacted in 2008 in response to the HomeBanc crisis which left real estate attorneys holding uncollected funds in their escrow accounts when that lender went out of business. It only applied to residential, lender-funded transactions, and while outlining what constitutes collected funds, the code section also defined participants and aspects of a transaction.
SB 365 made several significant changes to this Code Section. First, and most importantly, it redefined the term “settlement agent” to mean only the lender or an active member of the State Bar of Georgia. Stricken from the definition were individuals, corporations, partnerships, or other entities. Thus, only the lender or a Georgia attorney is allowed to settle or disburse a residential, lender-funded closing. The terms “disbursement of settlement proceeds” and “settlement” were unaltered. “Disbursement of settlement proceeds” still means the “payment of all proceeds of the transaction by the settlement agent to the persons entitled thereto;” and, “settlement” still means the “time when the settlement agent has received the duly executed deed to secure debt and other loan documents and (loan) funds. . .” In practice, only a lender or a Georgia attorney can receive executed loan documents, and collect and disburse closing funds.
The second major revision is a provision for criminal liability arising from someone other than the lender or a Georgia attorney acting as a settlement agent. Section (f) of the revised Code Section reads:
Any individual, corporation, partnership, or other entity conducting the settlement and disbursement of loan funds, when he, she, or it is not the settlement agent, shall be guilty of a misdemeanor.
The revision also provides for civil liability of no less than $1,000.00, plus actual damages and reasonable attorneys’ fees to the party suffering a loss resulting from a violation of the Code Section.
The SB 365 revisions went into effect July 1, 2012.
The second piece of legislation impacting real estate transactions is Senate Bill 331 (“SB 331”). It revised Title 33 of the Code relating to insurance to include closing protection letters (“CPL”) as a type of insurance which title insurers are authorized to issue. Among other things the bill requires the collection of a premium when issuing a CPL and requires insurers to maintain adequate reserves to protect against losses suffered under those policies. While the bill does not directly apply to real estate transactions, it does require the agent or agency issuing the CPL to also be the one responsible for disbursing the settlement funds.
Presumably, this requirement was simply intended to tie together the receipt of the premium with the issuance of the CPL policy. But when read with the revisions to SB 365 it reaches past the mere issuance of an insurance policy. If only a lender or Georgia attorney is allowed to settle and disburse a transaction, pursuant to SB 365, that means only a lender or Georgia attorney can be an issuing agent for closing protection letters, and ultimately, title insurance policies, at least in the context of residential, lender-funded real estate transactions.
SB 331’s revisions became effective upon the Bill’s signing by the Governor on May 2, 2012, and like SB 365, carry criminal liability for a violation. See O.C.G.A. § 33-5-3.
In our opinion, lenders can conduct business as usual with respect to closing their own loans; which is typically the case with HELOCs and second mortgages where no title insurance is required. In the event a CPL is issued as a requirement for closing a residential, lender-funded real estate transaction, the issuing agent must be the lender or a Georgia attorney. Further, these laws will prohibit “witness only” closings whereby the only involvement by a Georgia attorney is to witness and notarize documents as Georgia attorneys typically do not collect or disburse funds under that approach.
The law firm of Sherman & Phalen has and will continue to operate consistent with these changes in Georgia law. Our attorneys are responsible for supervising every aspect of a residential real estate transaction, from title, to settlement, and finally disbursement. Let us help you close your transaction in line with these new mandates.
 “Lender” is defined as “any person or entity regularly engaged in making loans secured by mortgages or deeds to secure debt on real estate.”