Settlement Agent Disbursement Authority is the official green light for a settlement agent—a neutral third party often from a title company or a real estate attorney—to distribute funds in a real estate transaction. This authority is granted only after all conditions of the sale are met, including the signing of documents, receipt of “good funds,” lender approval, and official recording of the new deed.
During a real estate closing, the settlement agent manages funds such as the buyer’s down payment, lender’s loan proceeds, and seller’s mortgage payoff amounts. However, they cannot release these funds until they receive Settlement Agent Disbursement Authority, which ensures the transaction’s legal and contractual obligations are fulfilled.
The typical process to secure disbursement authority includes:
- Document Signing: All parties sign critical paperwork like the deed, mortgage, and closing disclosure.
- Receiving Good Funds: The settlement agent must have all funds fully cleared—wire transfers or cashier’s checks are standard, not personal checks. This practice complies with state-level Good Funds Laws (source: American Land Title Association).
- Lender’s Approval: The lender verifies documents and authorizes fund release.
- Recording Documents: The new deed and mortgage documents are recorded with the county recorder’s office, formalizing ownership transfer and lien security.
- Granting Disbursement Authority: Once recording is confirmed, the settlement agent obtains legal authority to distribute funds from the escrow account.
For example, in a home sale, the settlement agent uses this authority to pay off the seller’s existing mortgage, prorated property taxes, agent commissions, title company fees, and the remaining seller proceeds. Without this authority, funds cannot legally be released, protecting all parties from risk.
This authority is essential because it safeguards buyers, sellers, and lenders by ensuring ownership and funding transfer occur in the correct order and that no funds are released prematurely. It prevents scenarios where money changes hands before legal ownership is clear.
Common misunderstandings include the assumption that money transfers immediately upon signing documents. In reality, fund disbursement follows deed recording and lender approval, which can take additional time depending on local procedures.
Importantly, the settlement agent acts as an impartial facilitator, governed by contract and law. They don’t represent either buyer or seller but ensure all closing steps comply with legal requirements for a fair transaction (see our Settlement Agent Role article for more).
For authoritative information, see Consumer Financial Protection Bureau on Closing Agents and the American Land Title Association’s Good Funds guidelines.