VIRGINIA REAL ESTATE PURCHASE AND SALE … liabilities, ... 1.1 RESA Lawyers and certain non-lawyers are permitted to conduct residential real estate closings for members of

JULY 2017 THE PRACTICAL REAL ESTATE LAWYER | 5

NEIL S. KESSLER is a partner with Troutman Sanders LLP in its Richmond, Virginia office. He has extensive experience in all areas of commercial real estate, including the acquisition, development, financing, leasing, con-struction, and sale of apartment projects, office buildings, shopping centers, office parks, manufacturing facili-ties, hotels, mixed-use projects, and residential developments. He regularly advises banks, mortgage brokers, and insurance companies on commercial real estate matters, including workouts and foreclosures. In addition, he has prepared construction contracts and bid materials for a major semiconductor manufacturer.

Sellers and Purchasers of real estate in Virginia and their attorneys must be fully aware of the laws and practices of the Commonwealth of Virginia applicable to real estate in order to take advantage of the protections available to sellers and/or purchasers and in order to avoid certain pitfalls which may result in unintended traps, liabilities, consequences or results for the unwary. This article will focus on certain of these laws and cus-toms, but is not intended to constitute an exhaustive or complete list of all issues that a seller or purchaser and their attorneys may face or should address. In addition, it is imperative to understand that transactions involv-ing residences will be subject to greater regulation and statutory requirements than commercial real estate transactions. In all instances, however, sellers and pur-chasers should consult a member of the Virginia State Bar to supplement the information in this article.

1. RESIDENTIAL REAL ESTATE

1.1 RESA Lawyers and certain non-lawyers are permitted to conduct residential real estate closings for members of the public only if they comply with the provisions of a Virginia law currently known as the Real Estate Settle-ment Agents Act (“RESA” or the “Act”). (RESA was ini-tially known as the Consumer Real Estate Settlement Protection Act [CRESPA] when it went into effect on July 1, 1997, but it was revised and recodified as RESA, effective October 1, 2010.) The Act can be found at Vir-ginia Code Sections 55-525.16 through 55-525.32. RESA governs attorney settlement agents as well as lay set-tlement agents. Attorneys acting as settlement agents are not required to comply with the Act’s requirements for commercial real estate transactions, but non-attor-ney settlement agents must do so. (Compliance with

RESA is required for transactions involving the pur-chase of not more than four (4) residential dwelling units where an attorney is the settlement agent, and pursuant to the “Rules Governing Settlement Agents” discussed below, has been expanded to be applicable to all residential and commercial transactions involving lay settlement agents.)

The Act was passed by the Virginia General Assembly in response to an opinion issued by the Virginia State Bar holding, in essence, that the closing of a residen-tial real estate transaction constituted the practice of law, thereby prohibiting non-lawyers from conducting such closings. In its current version, the Act authorizes licensed Virginia attorneys, title insurance companies and agents, real estate brokers and financial institu-tions (or subsidiaries or affiliates thereof) to serve as real estate settlement agents and to provide “escrow, closing or settlement services” for residential real estate transactions if they register with their respective licens-ing authority (e.g., with the Virginia State Bar for attor-neys, the Virginia Bureau of Insurance for title insurance agents and companies, the Virginia Real Estate Board for real estate brokers, and the State Corporation Com-mission of Virginia for financial institutions) and if they meet other conditions of their regulatory agencies. In addition, the Bureau of Insurance of the State Corpo-ration Commission of the Commonwealth of Virginia has issued “Rules Governing Settlement Agents,” effec-tive July 1, 2016, which govern lay settlement agents only, including attorneys, employees or owners of a lay settlement agency. See 14 Va. Admin. Code § 5-395-10 et seq.

14 Va. Admin Code § 5-395-40 requires a settle-ment agent (other than a financial institution or title

VIRGINIA REAL ESTATE PURCHASE AND SALE ISSUES FOR BUYERS

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insurance underwriter) to maintain (i) an errors and omissions policy or malpractice insurance policy with a minimum of $250,000 coverage per claim; (ii) a blan-ket fidelity bond or employee dishonesty policy with a minimum of $100,000 coverage (unless the settlement agent satisfies the Act’s waiver requirements); and (iii) a surety bond of not less than $200,000.

The Act leaves in place the Virginia State Bar’s unau-thorized practice of law guidelines applicable to real estate settlements. Among such guidelines is the pro-hibition for a settlement agent to provide any legal representation or to give legal advice to a party to a transaction unless the settlement agent is engaged in the practice of law in Virginia and has been specifi-cally retained to provide legal services to the party. The result is that sellers and/or purchasers of residential real estate in Virginia who use a non-attorney as settlement agent (or a settlement agent which employs an attor-ney to conduct or be present at the closing) in order to save money, or for convenience or other reasons, cannot be given legal advice by the settlement agent or any employee or attorney of the settlement agent regarding the legal effects of provisions of the deed, loan documents, title exceptions or contracts, or in the event any disputes arise at the closing.

Accordingly, it is always prudent for the parties to a res-idential transaction to engage attorneys to represent then, even in connection with the purchase.

For more information, see the following: Va. Admin.Code § 55-525.16 et seq.; 14 Va. Admin. Code § 5-395-10; www.vlta.org; “What You Need To Know About The Final ‘Rules Governing Settlement Agents’ Proposed By State Corporation Commission, Bureau of Insur-ance,” by Kevin T. Pogoda, published in the Fall 2016 edition of The Fee Simple, Vol. XXXVII, No. 2, a publica-tion of the Real Property Section of the Virginia State Bar; Unauthorized Practice of Law Opinion #183 of the Virginia State Bar and UPL Guidelines, http://www.vsb.org/site/regulation/real-estate; and “Residential Real Estate Contracts,” by Eric V. Zimmerman and Jack C. Hanssen, published in Real Estate Transactions in Vir-ginia (4th ed. 2015), edited by Neil S. Kessler and Paul H. Melnick, and published by CLE Publications, a non-profit education division of the Virginia Law Founda-tion (“Real Estate Transactions in Virginia”).

1.2 Statutory Settlement ProtectionSection 55-525.23 of the Virginia Code mandates that the following language be added in boldface, 10-point type to every contract in Virginia involving the pur-chase of real estate containing not more than four (4) residential units:

Choice of Settlement Agent: Chapter 27.3 (§ 55-525.16 et seq.) of Title 55 of the Code of Virginia provides that the purchaser or borrower has the right to select the settlement agent to handle the closing of this transaction. The settlement agent’s role in closing this transaction involves the coordi-nation of numerous administrative and clerical func-tions relating to the collection of documents and the collection and disbursement of funds required to carry out the terms of the contract between the parties. If part of the purchase price is financed, the lender for the purchaser will instruct the settlement agent as to the signing and recording of loan docu-ments and the disbursement of loan proceeds. No settlement agent can provide legal advice to any party to the transaction except a settlement agent who is engaged in the private practice of law in Vir-ginia and who has been retained or engaged by a party to the transaction for the purpose of provid-ing legal services to that party.

Variation by agreement: The provisions of Chapter 27.3 (§ 55-525.16 et seq.) of Title 55 of the Code of Virginia may not be varied by agreement, and rights conferred by this chapter may not be waived. The seller may not require the use of a particular settlement agent as a condition of the sale of the property.

Escrow, closing, and settlement service guide-lines: The Virginia State Bar issues guidelines to help settlement agents avoid and prevent the unauthorized practice of law in connection with furnishing escrow, settlement or closing services. As a party to a real estate transaction, the pur-chaser or borrower is entitled to receive a copy of these guidelines from his settlement agent, upon request, in accordance with the provisions of Chapter 27.3 (§ 55-525.16 et seq.) of Title 55 of the Code of Virginia.

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1.3 Virginia Residential Property Disclosure ActThe Virginia Residential Property Disclosure Act, Vir-ginia Code Section 55-517 et seq., modifies the com-mon law rule of caveat emptor in Virginia residential real estate transactions, and Virginia Code Section 55-519 requires the seller to provide to the purchaser in the contract the following residential “disclosure” statements relating to the residence being sold and the area in the vicinity of the residence:

i. The owner makes no representations with respect to the matters set forth and described at a web-site maintained by the Real Estate Board and that the purchaser is advised to consult this website for important information about the real property; and

ii. The owner represents that there are no pending enforcement actions pursuant to the Uniform Statewide Building Code (Virginia Code § 36-97 et seq.) that affect the safe, decent, sanitary living conditions of the property of which the owner has been notified in writing by the locality, except as disclosed on the disclosure statement, nor any pending violation of the local zoning ordinance that the violator has not abated or remedied under the zoning ordinance, within a time period set out in the written notice of violation from the locality or established by a court of competent jurisdiction, except as disclosed on the disclosure statement.

Section 55-519 of the Virginia Code also requires the following additional “disclosures” by the seller to the purchaser:

i. The owner makes no representations or war-ranties as to the condition of the real property or any improvements thereon or with regard to any covenants or restrictions as may be recorded among the land records affecting the real prop-erty or any improvements thereon, and purchas-ers are advised to exercise whatever due diligence a particular purchaser deems necessary, including obtaining a home inspection, as defined in Vir-ginia Code §54.1-500, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract;

ii. The owner makes no representations with respect to any matters that may pertain to parcels

adjacent to the subject parcel, including zoning classification or permitted uses of adjacent par-cels, and that purchasers are advised to exercise whatever due diligence a particular purchaser deems necessary with respect to adjacent parcels in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract;

iii. The owner makes no representations to any mat-ters that pertain to whether the provisions of any historic district ordinance affect the property and purchasers are advised to exercise whatever due diligence a particular purchaser deems necessary with respect to any historic district designated by the locality pursuant to Virginia Code § 15.2-2306, including review of any local ordinance creating such district or any official map adopted by the locality depicting historic districts, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract;

iv. The owner makes no representations with respect to whether the property contains any resource protection areas established in an ordinance implementing the Chesapeake Bay Preservation Act (Virginia Code § 62.1-44.15:67 et seq.) adopted by the locality where the property is located pur-suant to Virginia Code § 62.1-44.15:74 and that purchasers are advised to exercise whatever due diligence a particular purchaser deems necessary to determine whether the provisions of any such ordinance affect the property, including review of any official map adopted by the locality depict-ing resource protection areas, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract;

v. The owner makes no representations with respect to information on any sexual offenders registered under Chapter 23 (Virginia Code § 19.2-387 et seq.) of Title 19.2 and purchasers are advised to exercise whatever due diligence they deem necessary with respect to such information, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract;


vi. The owner makes no representations with respect to whether the property is within a dam break inundation zone. Such disclosure statement shall advise purchasers to exercise whatever due diligence they deem necessary with respect to whether the property resides within a dam break inundation zone, including a review of any map adopted by the locality depicting dam break inundation zones;

vii. The owner makes no representations with respect to the presence of any stormwater detention facil-ities located on the property, or any maintenance agreement for such facilities, and purchasers are advised to exercise whatever due diligence they deem necessary to determine the presence of any stormwater detention facilities on the property, or any maintenance agreement for such facilities, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract;

viii. The owner makes no representations with respect to the presence of any wastewater system, includ-ing the type or size thereof or associated mainte-nance responsibilities related thereto, located on the property and purchasers are advised to exer-cise whatever due diligence they deem necessary to determine the presence of any wastewater system on the property and the costs or require-ments related to the pump-out of septic tanks, in accordance with terms and conditions as may be contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract;

ix. The owner makes no representations with respect to any right to install or use solar energy collec-tion devices on the property; and

x. The owner makes no representations with respect to whether the property is located in one or more special flood hazard areas and purchas-ers are advised to exercise whatever due diligence they deem necessary, including (1) obtaining a flood certification or mortgage lender determi-nation of whether the property is located in one or more special flood hazard areas, (2) review of any map depicting special flood hazard areas, and (3) whether flood insurance is required, in accordance with terms and conditions as may be

contained in the real estate purchase contract, but in any event, prior to settlement pursuant to such contract.

1.4 Other Disclosure StatutesIn addition to the seller “disclosures” discussed above that are required by Virginia Code Section 55-519, the following Virginia statutes impose other contractual disclosure requirements relating to the sale of residen-tial property:

i. Section 55-518(B) contains disclosure require-ments for transfers involving the first sale of a dwelling. The builder of a new dwelling shall dis-close in writing to the purchaser thereof all known material defects that would constitute a violation of any applicable building code. This code section also requires certain disclosures by the builder or owner (if the builder is not the owner of the prop-erty) regarding previous mining operations for property located wholly or partially in any locality comprising Planning District 15. These disclosures must be made before the acceptance of the pur-chase contract for the sale of a completed dwell-ing, or after issuance of a certificate of occupancy when selling a dwelling before or during its con-struction. See also the discussion in Section 1.5 below regarding new home warranties.

ii. Section 55-519.1 requires the owner of residen-tial real property located in any locality in which there is a military air installation to disclose to the purchaser whether the subject parcel is located in a noise zone or accident potential zone, or both, if so designated on an official zoning map;

iii. Section 55-519.2 requires an owner with actual knowledge of the existence of defective drywall in the dwelling to disclose that fact in writing to a prospective purchaser;

iv. Section 55-519.4 requires an owner having actual knowledge that the residential property was previously used to manufacture metham-phetamine and has not been cleaned up in accor-dance with the guidelines established by § 32.1-11.7, to disclose such information to a prospective purchaser;

v. Section 32.1-164.1:1 contains a disclosure requirement regarding the continued validity of


septic system operating permits upon transfer of the property; and

vi. Section 11-2.4 requires every contract for the purchase of residential real property to include the following provision:

NOTICE

Virginia law (§ 43-1 et seq.) permits persons who have performed labor or furnished materials for the construction, removal, repair or improvement of any building or structure to file a lien against the property. This lien may be filed at any time after the work is commenced or the material is furnished, but not later than the earlier of (i) 90 days from the last day of the month in which the lienor last performed work or furnished materials or (ii) 90 days from the time the construction, removal, repair or improvement is terminated.

AN EFFECTIVE LIEN FOR WORK PERFORMED PRIOR TO THE DATE OF SETTLEMENT MAY BE FILED AFTER SETTLEMENT. LEGAL COUNSEL SHOULD BE CONSULTED.

vii. Virginia Real Property Owners’ Association Act. The Virginia Property Owners’ Association Act (Virginia Code § 55-509.4 et seq.) requires a dis-closure in a contract for the sale of a lot whether the lot is or is not located within a development subject to this law. If the lot is within such a devel-opment, the seller must obtain from the prop-erty owners’ association an association disclosure packet and provide it to the purchaser. The pur-chaser may cancel the contract within three days after receipt of the packet or after being notified that the association disclosure packet will not be available. For more details regarding the informa-tion to be contained in the association disclosure packet and other matters relating to the exercise by the purchaser of its rights under this statute, please refer to the statute.

viii. Virginia Condominium Act. The sale of a con-dominium unit by the unit owner requires the owner to disclose in the purchase contract that the unit is located in a development subject to the Virginia Condominium Act (Virginia Code § 55-79.39 et seq.). The Virginia laws regarding con-dominiums are outside the scope of this article. Reference to the statute is necessary to determine

the seller’s obligations to obtain and provide to the purchaser a resale certificate from the unit owners’ association, the purchaser’s right to can-cel the contract and other matters, many of which mirror the requirements of the Virginia Property Owners’ Association described above.

ix. Please note that federal law (40 C.F.R. § 745.107) requires sellers of residential property built prior to 1978 to provide purchasers with a federally approved lead hazard pamphlet and a form dis-closing known lead-based paint and lead-based paint hazards.

1.5 New Home WarrantyVirginia Code § 55-70.1 provides that in every con-tract for the sale of a new dwelling, the vendor shall be held to warrant to the vendee that, at the time of the transfer of record title or the vendee’s taking pos-session, whichever occurs first, the dwelling with all its fixtures is, to the best of the actual knowledge of the vendor, sufficiently (i) free from structural defects, so as to pass without objection in the trade, (ii) con-structed in a workmanlike manner, so as to pass with-out objection in the trade, and (iii) if the vendor is in the business of building or selling such dwellings, fit for habitation. The foregoing warranties are implied in the contract for sale, survive the transfer of title for a period of one year (five (5) years with respect to the foundations on new dwellings) from the earlier of the transfer of record title or possession by the vendee, and are in addition to any other express or implied warranties pertaining to the dwelling or its materials or fixtures. However, a contract for sale may exclude or contain a provision whereby a purchaser waives any or all express and implied warranties, in which event a new home will be sold in its “as is” condition, but for such a waiver or exclusion to be waived, it must be conspicuously set forth on the face and in the body of the contract in accordance with the requirements therefor provided in the aforesaid code section.

2. COMMERCIAL REAL ESTATE TRANSACTIONS

2.1 Settlement AgentsSee the discussion in Section 1.1 above relating to the rules and requirements governing non-attorney settle-ment agents in commercial real estate transactions.

2.2. There are no specific Virginia statutes requiring contract disclosures, notifications, representations


and warranties, and express or implied warranties by a seller in a commercial real estate transaction other than for issues relating to fraud, concealment or “bad acts” by any parties to a commercial real estate transac-tion. The law and the courts in Virginia do not see the need to protect the parties in commercial real estate contracts because they are generally more experi-enced and sophisticated than the parties to a residen-tial real estate transaction and they are more often represented by separate counsel. Most provisions in a commercial real estate transaction are negotiated (or at least negotiable) and form contracts are not as prev-alent as they are in residential contracts. Please refer to Section 3 below, MISCELLANEOUS ISSUES IN VIRGINIA REAL ESTATE TRANSACTIONS, for a discussion on mat-ters of Virginia law that are relevant to both residen-tial and commercial real estate transactions, many of which are more likely to be negotiated by the parties to a commercial real estate transaction.

3. MISCELLANEOUS ISSUES IN VIRGINIA REAL ESTATE TRANSACTIONS

3.1 Augmented EstateThe Virginia legislature abolished the concepts of dower and curtesy (Virginia Code § 64.2-301) and equitable separate estates (Virginia Code § 55-47.01) for all transactions subsequent to January 1, 1991. At the same time, the concept of “Augmented Estate” was introduced by Virginia Code § 64.2-305, and amended in 1992 by Virginia Code § 64.2-100 to attempt to clarify when it is necessary to obtain the signature of a non-owning spouse in a real estate transaction. Essentially, a non-owning spouse’s signa-ture to a deed of real estate is not needed unless the “adequate consideration for the property” is unclear, or the conveyance is a gift or for inadequate consider-ation. A sale or conveyance to a “bona fide purchaser” does not require a non-owning spouse’s signature to a deed. A “bona fide purchaser” is a purchaser of property for value who has acted in the transaction in good faith.

3.2 Deed Of TrustIn Virginia, the deed of trust generally serves as the security device in real estate transactions. The basic form of an acceptable deed of trust under Virginia law is set forth in Virginia Code § 55-58. The requirements for trustees of Virginia deeds of trust are set forth in Virginia Code § 55-58.1 (must be a Virginia resident or

an entity organized under the laws of the Common-wealth of Virginia or of the United States of America).

In addition to the statutory requirements for a deed of trust trustee in Virginia there are ethical considerations that must be considered by a named trustee before he or she should act as trustee under the deed and trust.

The role of a deed of trust trustee in Virginia is as a fidu-ciary for the lender/beneficiary and the grantor/bor-rower. The trustee is responsible for ensuring that the foreclosure sale is properly and legally conducted, that the foreclosed real property is properly conveyed and that the proceeds from the sale are distributed in accor-dance with Virginia law. Therefore, even though a deed of trust trustee may be initially named and appointed by the lender/beneficiary (and may be the attorney for the lender/beneficiary), before the lender/beneficiary commences foreclosure proceedings, it is imperative to make sure that the trustee has no conflicts of interest in acting as a trustee. The trustee should not give legal advice to the lender/beneficiary or the grantor/bor-rower. And, if the lender/beneficiary wants the named trustee to advise it on the foreclosure or any other mat-ter relating to the debt secured by the deed of trust or the real property encumbered by the deed of trust, the named trustee should resign as trustee and/or the lender/beneficiary should appoint a “neutral” substi-tute trustee. If this is not done, the lender/beneficiary risks having the foreclosure proceedings reversed (or at least appealed) and the attorney acting as trustee may be cited for ethical violations. (Similar issues exist where the lender/beneficiary names an employee to serve as a trustee. Although such employee may not be subject to the same ethical constraints binding on attorneys, a lender/beneficiary should name a “neu-tral” substitute trustee prior to commencing collection or foreclosure proceedings to avoid any appearance of impropriety and any risk of having the foreclosure pro-ceedings reversed.)

3.3 Types of Deeds and Deed WarrantiesIn Virginia, there are three types of deeds. The gen-eral warranty deed, in which the grantor warrants the title against any and every claim that may arise, affords the greatest possible benefits for the grantee. Virginia Code Section 55-68 provides that when a general war-ranty deed is given, the grantor is deemed to have covenanted “that, he, his heirs and personal represen-tatives will forever warrant and defend such property


unto the grantee, his heirs, personal representatives and assigns, against the claims and demands of all per-sons whomsoever.” Absent special circumstances, it is customary for a seller of residential property to convey title by general warranty deed.

The special warranty deed offers substantially less protection to a grantee than a general warranty deed. In a special warranty deed, the grantor warrants and is liable only for those defects in title resulting from claims by persons or entities whose rights are allegedly derived through the grantor. Virginia Code Section 55-69 provides the following statutory definition of a special warranty: “that [the grantor], his heirs and per-sonal representatives will forever warrant and defend such property unto the grantee, his heirs, personal representatives and assigns, against the claims and demands of the grantor, and all persons claiming or to claim by, through or under him.”

The third type of deed, and the one that affords the grantee the least (if any) protection, is the quitclaim deed. In a quitclaim deed, the grantor makes no war-ranty of title whatsoever. Rather, the grantor “quit-claims, releases, and conveys” to the grantee whatever right, title, and interest, if any, he or she may have in or to the subject real estate.

A general warranty deed customarily expressly con-tains “English covenants” of title given by the grantor to the grantee. The so-called English covenants of title are a series of five covenants of title made by the grantor to the grantee. They were intended to encom-pass all reasonable challenges that might threaten the grantee’s title. By making the English covenants, the grantor warrants that:

i. The grantor is seised of the subject property in fee simple;

ii. The grantor holds the valid right and lawful power to convey fee simple title to the property;

iii. The grantee and his or her heirs and assigns will have quiet possession and will hold and enjoy the property free from the claims of any other person or entity;

iv. The grantor and his or her heirs will execute all further assurances of title as will be reasonably required by the grantee, and his or her heirs or assigns; and

v. The grantor has not done any act to encumber the property conveyed.

As with the issue of what type of warranty will be given, whether a grantor conveys property with the English covenants is a matter of negotiation between the par-ties. Although it had been the custom, absent special circumstances, for a grantor in Virginia to convey title to land with general warranty and English covenants of title, that custom has changed with the predomi-nance of title insurance in real estate transactions. Spe-cial warranty deeds are now more commonly used in commercial transactions. Virginia Code Section 55-68 provides that when a general warranty deed is given, the grantor is deemed to have covenanted “that he, his heirs and personal representatives will forever war-rant and defend such property unto the grantee, his heirs, personal representatives and assigns, against the claims and demands of all persons whomsoever.” Vir-ginia Code Section 55-69 provides the following statu-tory definition of a special warranty: “that [the grantor], his heirs and personal representatives will forever war-rant and defend such property unto the grantee, his heirs, personal representatives and assigns, against the claims and demands of the grantor, and all persons claiming or to claim by, through or under him.”

Most of this Section 3.3 has been reprinted with per-mission from Chapter 9, The Deed, by Paul H. Melnick, Volume 2, Real Estate Transactions in Virginia.

3.4 Virginia Registration Requirement For Nonresident Transferors

Section 58.1-317(A) of the Virginia Code requires every nonresident payee receiving proceeds from the trans-fer of fee simple title in real estate location in Virginia to register with the Virginia Department of Taxation. This requirement applies to all real estate transactions unless exempted (emphasis added). The “real estate reporting person” (as defined in I.R.C. § 6045(e)) is required to obtain an executed registration form from each nonresident Virginia payee (known as Forms R5 and R-5P) from the Virginia Department of Taxa-tion, retain a file copy of the form, and transmit the original executed copy to the Virginia Department of Taxation on or before the 15th day of the month fol-lowing the month in which the title was transferred. The real estate reporting person is subject to a civil penalty of $50 per month, for up to six months, for fail-ure to file timely, properly or correctly. Virginia Code §


58.1-317(C). A settlement agent may charge no more than $10 for preparing and filing the report. Virginia Code § 55-525.26. Furnishing false or fraudulent infor-mation by either the nonresident Virginia payee or the real estate reporting person is a Class 1 misdemeanor.

If the transferor is exempt from the nonresident real property owner registration requirements, an executed exemption certificate (Form R-5E) should be obtained from the transferor and filed by the real estate report-ing person with the Virginia Department of Taxation. Examples of exemptions of Virginia nonresidents from the registration requirements following sales of Vir-ginia real property are:

i. transfers of property from the U.S. Government, agencies of the U.S. Government, Virginia and its agencies and political subsidiaries, banks, credit unions, insurance companies, nonprofit organi-zations not subject to tax on unrelated business income and other organizations not subject to Virginia income tax;

ii. sales of principal residences with intent to defer taxes by rolling over the proceeds into a new principal residence pursuant to former Internal Revenue Code Section 1034;

iii. sales of principal residences with intent to utilize the former onetime $125,000 exclusion for tax-payers age 55 and over;

iv. like-kind exchanges under Internal Revenue Code Section 1031;

v. involuntary conversions eligible for tax deferral under Internal Revenue Code Sections 1033 and 1034;

vi. tax free gift or inheritance under Internal Revenue Code Section 102;

vii. tax free contribution for partnership interest under Internal Revenue Code Section 721;

viii. transfers of property pursuant to tax-free corpo-rate reorganization;

ix. tax-free contributions to corporation in exchange for stock under Internal Revenue Code Section 351; and

x. other transactions not subject to federal or Vir-ginia income taxes. The transferors who are

exempt from the nonresident registration require-ments include a Virginia resident individual, estate, or trust; a corporation organized under Virginia law; or an S-corporation, partnership, or limited liability company with no nonresident Vir-ginia shareholders, partners, or members.

On the other hand, registration is required for all indi-viduals who are not domiciled in Virginia or who do not live in Virginia for more than 183 days during a year; corporations not organized under Virginia law; estates and trusts which consist of real property belonging to a nonresident individual (or descendent) or that are administered outside of Virginia; and partnerships, lim-ited liability companies and S-corporations which have nonresident partners, shareholders or members who receive income from the sale of real estate located in Virginia.

Portions of this Section 3.4 have been reprinted with permission from Chapter 12, Resident Closings, by Kay Creasman, Volume 2, Real Estate Transactions in Virginia.

3.5 UsurySection 6.2-303 of the Virginia Code sets forth Virginia’s contract rate of interest and provides that “[e]xcept as otherwise permitted by law, no contract shall be made for the payment of interest on a loan at a rate that exceeds twelve percent per year.” (emphasis added). The emphasized language is the key to Virginia’s usury law, because the exceptions are so extensive that, as a practical matter, usury is rarely an issue in commercial lending transactions.

Virginia has two statutes that practically eliminate the defense of usury in most commercial situations. Sec-tion 6.2-317 of the Virginia Code provides that no per-son can avoid or defeat the obligation to pay interest or any other sum in connection with a loan made for business or investment purposes by using the defense of usury, provided that the initial amount of the loan is for $5,000 or more. Section 6.2-308 of the Virginia Code provides that no that no (i) corporation, (ii) partnership that is formed under laws of a jurisdiction other than the Commonwealth of Virginia, (iii) limited liability com-pany, (iv) business trust or (v) joint venture organized for the purpose of holding, developing and managing real property for profit, shall, by way of defense or oth-erwise, avail itself of any statutory or case law relating to usury or the compounding of interest to avoid or


defeat the payment of any interest or any other sum that it has contracted to pay.

The foregoing Section 3.5 has been reprinted with permission from Chapter 11, Commercial Loan Docu-mentation, by C. Grice McMillan, Volume 2, Real Estate Transactions in Virginia.

3.6 Recording TaxesOn every deed admitted to record in Virginia, except a deed exempt from taxation by Virginia law, a state recordation tax is levied in an amount equal to 25 cents on every $100 or fraction thereof of the consid-eration of the deed or the actual value of the property conveyed, whichever is greater. Virginia Code Section 58.1 – 801. In addition, the council of any city and the governing body of any county may impose a city or county recordation tax in an amount equal to one-third of the amount of the state recordation tax. The forego-ing state and local recordation taxes are customarily paid by purchasers of Virginia real property unless the sellers and purchasers agree to split the recordation taxes or to allocate the liability and responsibility for the full payment thereof to the seller. Virginia Code Section 58.1 – 814.

Virginia law also imposes taxes which are payable by the grantor upon the recordation of a deed. The so-called “grantor’s tax” is equal to 50 cents for each $500 or fraction thereof (exclusive of the value of any lien or encumbrance remaining on the conveyed real prop-erty after the sale, whether such lien is assumed or the

realty is sold subject to such lien or encumbrance). Vir-ginia Code Section 58.1 – 802.

The grantor may, in some jurisdictions in Virginia, also be required to pay a “regional congestion relief fee” upon the recordation of a deed conveying real prop-erty which is located in any county or city in a Plan-ning District established pursuant to Virginia Code Sections 15.2 – 4200 et seq. which has a population of 2,000,000 or more, has not less than 1.7 million vehicles registered therein and has a total transit ridership of not less than 50 million riders per year across all transit systems within the Planning District. The rate of the fee is equal to 15 cents for each $100 or fraction thereof of the consideration or value of the real property being conveyed, whichever is greater (exclusive of the value of any lien assumed or subject to which the realty is sold). A grantor is advised to contact the clerk of the circuit court in which the real property to be conveyed is located to determine whether a regional conges-tion relief fee will be payable upon the recordation of a deed in such jurisdiction. Virginia Code Section 58.1 – 802.2.

CONCLUSIONObviously, there are many other laws and practices in Virginia relating to real estate transactions which are unique to Virginia. Indeed, some practices vary in dif-ferent parts of the Commonwealth. Accordingly, when considering a real estate transaction in Virginia, it is imperative to consult with an attorney who is licensed in and familiar with real estate practice and laws in the Commonwealth of Virginia.

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VIRGINIA REAL ESTATE PURCHASE AND SALE … liabilities, ... 1.1 RESA Lawyers and certain non-lawyers are permitted to conduct residential real estate closings for members of