Can a broker get paid a commission before the closing documents have been recorded?

QUESTION: This morning a closing attorney politely declined to disburse my commission check to me during the closing at his office. He said that I would have to come back in the afternoon or tomorrow after he finished recording, because the law required him to record the closing documents before he could pay me from his trust account. Several agents in my firm have now referred me to other law firms who do not follow the same procedure. Can you explain why some attorneys disburse commission checks only after recording is complete?

ANSWER: The Good Funds Settlement Act (“GFSA”), Chapter 45A of North Carolina’s General Statutes, clearly says that an attorney may not disburse funds from his or her “trust or escrow account until the deeds, deeds of trust, and other required loan documents have been recorded in the office of the register of deeds.” There is a limited exception that applies only to fees directly related to recording, not commission payments. A lawyer who violates the GFSA and disburses a commission prematurely may be breaking disbursement rules required by the lender, or worse, violating the North Carolina State Bar’s Rules of Professional Conduct.

Under Standard Forms 101 and 201, listing agents and buyer agents are entitled to their commission upon “[d]istribution of proceeds from sale of the Property by the closing attorney.” Thus, a firm’s entitlement to its fee under either of those forms is consistent with the Good Funds Settlement Act, which, as noted above, restricts a closing attorney from distributing proceeds from the sale until all necessary closing documents have been recorded.

Given the law on this issue, we are not sure why any attorney would disburse funds from their trust account before recording is complete. However, brokers should note that since they are not entitled to their commission before Closing is finished under the agency agreement forms, and the law does not permit a closing attorney to disburse trust funds before recordation, then they should not pressure a closing attorney to disburse trust funds prematurely. NC Real Estate Commission 58A.0120(a) provides that “[a] broker shall not require or demand of any escrow agent or attorney that a broker’s commission be split with or paid to another person or entity.” We believe the Commission would feel the same way about a broker’s attempting to persuade an attorney to violate the GFSA, which means an offending broker could possibly face discipline.

Release Date: 11/15/2018; revised 10/8/2021

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