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I was about to sell a home where I have good equity, my question is what are the chances that settlement company never pays me the proceeds and runs away/abscond.

I see there is FDIC insurance for protections against Bank Fraud, SIPC for protection against brokerage failure. So what is the protection does a seller have against settlement company.

A second way of asking could be How to verify that settlement company is not a fraud ?

a third way for same question. How to verify the legitimacy of settlement company ?

A fourth way. Will my title insurance cover the loss if during the sale, the settlement company abscond with money.

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    Isn't this a problem for the buyer? Until you (and/or your mortgage lender) have the cash in hand, I don't think the transaction is complete.
    – chepner
    Jul 11, 2020 at 22:52
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    You might simply look to see if the company has a history of doing business. I just looked up the title company I dealt with most recently. It's not likely that a company doing about $5.8 billion worth of business is going to abscond with your money.
    – jamesqf
    Jul 12, 2020 at 4:34
  • @jamesqf where to verify that, a title company (if fraud) can make any claim. So just like for FDIC, we can go to fdic.gov and verify. What about settlement company ?
    – puzzled
    Jul 13, 2020 at 19:09
  • @chepner please look at comment that I am just going to add after this
    – puzzled
    Jul 13, 2020 at 19:12
  • Here is what the settlement company says The timing of the receipt of your proceeds will be dependent upon several factors. On the day of closing, once we have completed the buyers' portion, then we will take the next steps to get authorization from the lender in order to submit the appropriate documents to the courthouse. Once we are on record with the county, then we will be in a position to disburse funds.
    – puzzled
    Jul 13, 2020 at 19:12

1 Answer 1

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The real estate laws are state laws. I picked Virginia as an example.

In Virginia this is regulated by the state corporation commission. The position is Real Estate settlement Agent.

Registration/Licensing related questions

1.Who is required to be registered?

Any person, other than the lender, seller, purchaser or borrower, who conducts the settlement conference and receives or handles money, must be registered. See Virginia Code § 55.1-1000 and Chapter 395, Rules Governing Settlement Agents, Regulation 14VAC5-395-10 through 14VAC5-395-90.

There is a procedure for registering

Step 1

Apply for a Virginia Title Insurance Agent or Agency license.

Step 2

Obtain an appointment with an insurer in Virginia.

Step 3

Secure each of the following insurance coverages. On the RESA application you must attest that you have and will keep the following for as long as you are a Real Estate Settlement Agent:

  • An Errors and Omissions insurance policy (E&O) or Malpractice policy with a limit of at least $250,000

  • A Blanket Fidelity Bond or Employee Dishonesty insurance policy in the amount of at least $100,000 per occurrence or claim. Settlement agents with no employees except the owners, partners, shareholders, or members may request a waiver of this requirement on their RESA application or submit the Waiver Form later.

Step 4

Purchase a Surety Bond in the amount of $200,000 from an authorized surety company. The surety company must use the official Surety Bond Form.

Step 5

Register as a Real Estate Settlement Agent via Sircon. On Sircon, the application is referred to as a Title Settlement Agency/Agent application. The nonrefundable application fee is $100 for an agency and $35 for an agent. Note: Agencies must register their business with the Clerk’s Office of the Virginia SCC before submitting their RESA application.

Step 6 Mail the original Surety Bond to the following address:

The state also provides a way to verify the license of an agent, and lookup any complaints.

Specifically addressing the 4 questions:

  1. So what is the protection does a seller have against settlement company.

The state licensing and the requirement for insurance and a bond. They are required to have this coverage.

A second way of asking could be How to verify that settlement company is not a fraud ?

They are licensed by the state. The government has a way for you to check on their history You should be able to see the history of complaints against the company. When deciding to use a settlement company you need to check the information they give you regarding their license.

a third way for same question. How to verify the legitimacy of settlement company ?

Again the state government through the appropriate licensing agency.

A fourth way. Will my title insurance cover the loss if during the sale, the settlement company abscond with money.

There are two title insurance policies. The one that is required by the lender is only there to protect the lender. If they get their money they don't care about the rest of the transaction. So if the settlement attorney sends the payoff money to the old lender they are fine.

The second type of policy is optional and protects the homeowner. You will have to review the documents to see when coverage stops, and what protection do they have regarding the equity.

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  • @mhoran-psprep if a company is listed with State Corporate Commission, it only verifies that at one point company registered, but does not make transaction secure . There has been instances where Bernie Madoff and Ponzi schemes are done by companies that are registered.
    – puzzled
    Jul 13, 2020 at 23:21
  • If they have acted honestly in the past their insurance policy would have kicked in, the state would have been notified and the they could even lose their license and their bond.
    – mhoran_psprep
    Jul 14, 2020 at 11:39
  • @mhoran-psprep with logic that in past ... , then in past ** quora.com/Why-and-when-did-Countrywide-go-out-of-business ** was doing right, but FDIC was needed to be kicked in
    – puzzled
    Jul 14, 2020 at 19:56
  • If the state government, an insurance policy, and the threat of jail doesn't satisfy your requirements what would?
    – mhoran_psprep
    Jul 14, 2020 at 20:13
  • @mhoran-psprep if fraud happens with Bank, does not state government, threat of Jail etc not occure, so why FDIC?
    – puzzled
    Jul 14, 2020 at 21:17

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