We received the following question relating to disclosure packets and financial updates: Va. Code § 55-509.9 provides that settlement agents may request escrow instructions from the disclosure packet preparer, who would be the association manager in the case of a professionally managed association. No fee may be charged for escrow instructions, whereas an association manager may charge a $50 fee for a financial update. Settlement agents and other parties involved in the sale of a property (e.g. real estate agents) regularly request written confirmation of outstanding assessments, special assessments, HOA insurance coverage, insurance agent contact information, etc. Since this information is in the disclosure packet already provided, does this information qualify as a “financial update” for which a fee may be charged? Is there a definition of what is included in a settlement agent request that is not subject to a fee and one that is?

Our answer revolves around the definitions of “escrow instructions” and “financial update,” only the latter of which is set out in the Property Owners Association (POA) Act. Section 55-509 of the POA Act defines “financial update” as an update of the financial information listed in Section 55-509.5.A.2-7. Va. Code § 55-509.5.A. is the POA Act subsection that lists the required contents of an association disclosure packet. Items 2 through 7 of that subsection describe the contents of a financial update: statements of special assessments for the current and preceding year; assessments, post-closing fees, and other fees currently imposed by the association and the status of the lot’s account; a statement of additional entities to which fees or charges may be owed; a copy of the current reserve study or summary; the association budget or summary; and a statement of the nature and status of pending suits and unpaid judgments to which the association is a party. In other words, a financial update is a full report of the financial status of the association and of the particular lot being sold in relation to the association. Both Sec. 55-509.6 (associations managed by a CIC manager) and Sec. 55-509.7 (self-managed associations) provide that a settlement agent may request a financial update. (A full disclosure packet update may be requested by the seller, seller’s agent, the purchaser, or the purchaser’s agent; only a settlement agent may request a financial update. The fee for each update is $50.)

Va. Code § 55-509.9 discusses the interaction of the closing agent with the association. Subsection A deals with requests from the settlement agent. Subsection B deals with information the settlement agent should provide to the association when transmitting funds following closing. Subsection A names two things the settlement agent may request from the association or its manager: (1) escrow instructions and (2) financial updates. No fee may be charged for escrow instructions. As previously discussed, a $50 fee may be charged for a financial update. Escrow instructions are directions from a party who has a financial stake in a real estate closing to the agent holding the escrowed deed, purchase funds, and other documents and funds necessary for the transaction. The directions explain what contingencies must be met for disbursement from escrow and how to treat those specific documents and/or funds in escrow as to which the person giving the instructions has an interest. In this case, the association will have an interest in certain funds to be paid at closing, including charges for disclosure packets and financial updates, assessments owed on the lot being sold, and other unpaid charges or fees, all as set forth in the disclosure packet. The association’s escrow instructions will, at a minimum, tell the settlement agent to whom and to what address those funds should be sent (or if they should be held for pick-up) and in what form they should be sent (e.g. check, wire). 

The question, then, is whether an association has the right to charge a $50 fee if the settlement agent’s request encompasses more than logistical issues and asks for content already provided in the disclosure packet. It is reasonable and prudent for a settlement agent to request confirmation of the exact amount to be disbursed to the association. Since the period from receipt of the disclosure packet to closing can be several months, this figure will likely change from that provided in the disclosure packet. Part of the escrow instructions should be the current figure the association expects to receive upon disbursement of closing funds and what those are for. The settlement agent needs this information for the settlement statement; confirmation of this figure should be considered part of the escrow instructions and should not incur a charge. As to information already provided in the initial disclosure packet, such as the Association’s insurance coverage and information regarding special assessments, simply refer the agent to the disclosure packet for this information. If, however, the financial information (A2-A7) of the disclosure packet has become materially out of date since the initial disclosure, inform the settlement agent that he or she needs a financial update; and a fee may be charged for the update.

In summary, the term “financial update” contemplates a comprehensive report of the association’s finances and the status of the lot being sold in relation to the association finances, whereas escrow instructions are only those facts and figures the settlement agent needs to disburse closing funds correctly. The settlement agent should not be charged for the information he or she needs to do his job of simply disbursing the closing funds, but the association does have the right to charge for a complete financial update.