Wet Settlement Act (HB 1098)
WET SETTLEMENT ACT (HB 1098)
A small change to the Act clarifies that the definition of “settlement” applies only to the Act and not to the use of the term in purchase agreements between buyer and seller.
For example, on Friday, buyers sign loan documents, lender has deposited good funds into the settlement agent’s account, and the deed and other seller documents are in escrow with the settlement agent. Recordation and disbursement are all that remain to be done to complete the transaction. The Wet Settlement Act defines “settlement” as occurring at that time. However, this definition is for purposes of the Act only, which requires (i) that the lender have good funds available to the buyer at “settlement,” and (ii) that the settlement agent record and disburse within two business days after “settlement.” The definition of “settlement” under the Act was never meant to apply to any other use of the term. The new language in the Act (HB 1098) makes clear that the definition of “settlement” applies only for purposes of the Act, and for all other purposes – such as the use of the term in a purchase agreement – the parties look to their agreement, and not to the definition in the Act.
Therefore, if the buyer is entitled under the contract to possession at settlement, we look to the definition of settlement under the contract – that is, to the agreement between buyer and seller – to determine when that occurs. We do not look to the Act, which imposes duties only on lenders and settlement agents. Similarly, if the contract requires the purchase price to be paid at settlement, the seller may not look to the Act and demand payment on Friday.
Where in the contract will we find the definition of settlement? Well, most contracts do not spell that out specifically and historically have not, but instead rely on the centuries-old common law definition (the common law governs most terms and provisions of our purchase agreement). Under the common law, settlement occurs when all conditions of the contract have been met, escrows have been closed (this is where we get the term “closing”), and both parties are in a position to tender performance. The parties may change this by contract, but remember, if settlement occurs Friday for the buyers, it occurs Friday for the sellers. If it occurs Monday or Tuesday for sellers (the purchase price is released from escrow), that’s when it occurs for buyers.