January 23, 1976
Mr. Jack C. Burchill, Secretary
South Dakota Real Estate Commission
Post Office Box 638
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 76-9
Real estate closing statements
Dear Mr. Burchill:
You have requested an opinion based upon the following set of facts:
In a certain city in South Dakota no real estate broker actually closes any real estate sales made by him where new mortgages are obtained. The financial institutions that loan funds on the property that is sold actually close the sale. The brokers do not issue a final closing statement on that particular type of sale to either the buyer or seller.
Many brokers from that city have contacted the Real Estate Commission inquiring if it would be permissible for them to have the financial institution that is closing the sale incorporate on its closing statement the various transactions handled by the broker, and whether this would suffice to meet the requirements of the law.
The brokers are particularly concerned about this problem in light of the section of the Code found in SDCL 36-21-42.1(15) that makes it unprofessional conduct not to issue a complete, detailed closing statement. They are also concerned about the application of SDCL 36-21-35 through 36-21-35.3, inclusive.
In a typical transaction the broker will only handle the earnest money paid by the buyer. All that many brokers are now making a statement on is the earnest money that has been handled through their trust accounts.
The loaning institution is issuing a financial statement that will often include many of the following things: points paid by buyer or seller; proration of taxes; proration of insurance; escrow funds; title search fees; attorney fees, and many other items of this nature.
Based on this set of facts, you ask the following questions:
1. May the broker allow the financial institution to make a closing statement and have the financial institution note on its closing statement the funds that have been handled by the broker and thus comply with the provisions of law? As a variation on this theme, other suggestions are that the broker stamp on the financial institution's closing statement that this is also the broker's statement or other things of this nature.
2. Is there any requirement that the closing statement be signed and dated by the broker?
3. Is it the responsibility of the broker to make and complete a separate closing statement for both buyer and seller on each real estate transaction handled by that broker?
My opinion is as follows:
QUESTION l. SDCL 36-21-42.1(15) reads as follows:
Failure by a broker to deliver to the seller in every real estate transaction, at the time said transaction is consummated, a complete, detailed closing statement, showing all of the receipts and disbursements handled by such broker for the seller; also failure to deliver to the buyer a complete statement showing all money received in said transaction from such buyer and how and for what the same was disbursed, and to retain true copies of such statements in his files.
The language in the above cited statute is quite clear. A "complete, detailed closing statement" means just that. The Legislature has stated that such closing statement must show all of the receipts and disbursements handled by the broker for the seller. In your factual situation you also stated such things as points paid by a buyer or seller, proration of taxes, proration of insurance, escrow funds, title search fees, attorneys' fees and many other items of this nature. If these items are included in the sale at any time, such transactions must be included in the complete and detailed closing statement. In my opinion, it is the broker's duty to include them in the closing statment even though he did not participate in any of the transactions.
It is clear that it was the legislative intent in passing Chapter 250, Laws of 1974, and in that particular section cited above, that the broker was responsible for making a complete and detailed closing statement. This duty may not be delegated to a financial institution or any other person.
Legislative intent is further indicated by statutes found in SDCL 36-21-35 through 36-21-35.3, inclusive. Those statutes state, inter alia, that a broker is not entitled to any part of the earnest money or other money paid to him in a real estate transaction as part of his commission or fee until the transaction has been consumated or terminated. The statutes also speak about final settlement and detail the types of record keeping that a broker must perform. My opinion is that the Legislature intended in passing the new act to impose upon the real estate profession the duty to keep proper records and to also provide participants in the sale with a detailed statement after the transaction has been completed. This legislation was consumer legislation to both inform and protect the consumer.
To summarize, on question 1, it is my opinion that the broker may not delegate to a financial institution or any other person the duty of making a final closing statement on the sale. It is the broker's duty to make a separate complete detailed closing statement even though another person or institution may have also made a closing statement. If a proper closing statement is not made by the broker, it could be unprofessional conduct pursuant to statute.
QUESTION 2.
I have searched the requirements of the real estate law and rules and there does not appear to be any requirement of signing and dating by the broker. In my opinion good business practices would mandate that the broker would date and sign the closing statement. I would be surprised if brokers are not so doing at the present time. If the Commission wishes to make this requirement, they should promulgate a rule in this regard pursuant to 1-26.
QUESTION 3.
Based upon my answer in question 1, it is my opinion that it is the responsibility of the broker to make a complete separate closing statement for both the buyer and the seller on each real estate transaction. I realize that these closing statements will differ between the buyer and the seller but any transaction that occurs in the sale, regardless of who has made the transaction, must be covered in the closing statement in order to make it a complete and detailed closing statement. Again I must reiterate that this duty may not be delegated to any other person.
Respectfully submitted,
WILLIAM J. JANKLOW
ATTORNEY GENERAL
WJJ:WJS:dk
