Best Practices: Road Map to Implementation
|June 27, 2013
Like many ALTA member companies across the country, Montana-based American Title & Escrow already followed many of the procedures outlined in ALTA's “Title Insurance and Settlement Company Best Practices." Many were not put in writing, however.
"We are in the process of writing policies on each one of the Best Practices and also examining our processes and making improvements as needed,” said Carol Kirby, operations director for American Title & Escrow.
The company recently implemented a “clean desk” policy. Kirby said documents with personal information are scanned when they come into the office and then shredded. Any paper files with personal information, such as original documents and affidavits, are kept in a locked file. Settings on computers have been changed to lock when not in use. The company plans to address the issue of securing information in emails during the third quarter of 2013.
“ALTA’s Best Practices has been a good thing for all title companies because it has caused us to take the time to step back and look at how we can improve our processes,” Kirby said.
Shonna Cardello, president of White Rose Settlement Services in Pennsylvania, agreed with Kirby that the Best Practices helped formalize processes that were already in place.
“We had a system, but it was not written down,” she said. “ALTA does a phenomenal job of providing information to help its members be compliant.”
Cardello focused on enhancing procedures regarding escrow accounting and protecting Non-public Personal Information (NPI). She’s working with a vendor to help automate account reconciliations, which will enable the company to find errors within a day and make any necessary corrections. Additionally, the vendor assists White Rose Settlement with Positive Pay. The vendor submits checks to the bank throughout the day, saving Cardello’s employees time and giving her clients a more efficient system. She uses another vendor to securely send messages containing NPI.
“I don’t think most title agents realize that the HUD-1 is a non-public, personal document, especially with the addition of page three in January 2010,” she said. “With the FTC starting enforcement actions, we as an industry need to band together to ensure the safety of the information. Lenders require all documents to be sent securely and we must require the same.”
Chris St. John, president of Kansas-based Lawyers Title of Topeka, added that the Best Practices provide a basic framework to evaluate the company’s business processes and provide insight where improvements were needed.
“Once we have documented our processes, we will be able to show our customers we are ready to do business in the future,” St. John said.
While many members have used ALTA’s resources as guidance, others, such as Martha McConnell, president of the Palmetto Land Title Association, took advantage of the Best Practices checklists. She used these during seminars and in a series of memos to educate agents on the importance of implementing pillars of the Best Practices.
In April, ALTA President Frank Pellegrini met with Richard Cordray, director of the Consumer Financial Protection Bureau, for the second time in six months to discuss items impacting the industry, including Best Practices.
“As the Bureau continues to enhance its supervision and examination program, we hope that the CFPB will encourage financial institutions to consider utilizing ALTA’s Best Practices as part of their compliance management process,” Pellegrini said.
The following is a compilation of checklists as well as tips on complying with the pillars of the Best Practices.
Resources to Ensure Proper Licensing, Compliance
While there are many parts to the Best Practices, one item that title agents, settlement providers and attorneys can easily implement is to begin maintaining an electronic or hard-copy folder with up-to-date licensing information. This can include company or individual employee licenses. Maintaining state-mandated insurance licenses and corporate registrations (as applicable) ensures that the company remains in good standing with the state.
State insurance departments are a good source for company and agent licensing information. The National Association of Insurance Commissioners provides a map with information and links to states or jurisdictions. The map is located at www.naic.org/state_web_map.htm.
Additionally, ALTA compiles details on state laws relating to the licensing and operating requirements of title insurers, title agents, abstracters, and escrow and closing agents in Title Insurance Regulatory Survey. The survey can be purchased by volume, containing the regulatory details on one of six regions of the country, or as a complete set featuring all 50 states and the District of Columbia. For more information, go to: www.alta.org/publications/tirsdownload.
Also, any issuing agent of title insurance is required to hold a license for the continued use of ALTA’s policy forms. Cost of a Policy Forms License is $195. Membership with ALTA includes a Policy Forms License for no separate cost. For more information, go to: www.alta.org/forms.
Tips on Documenting Your Escrow Trust Account Policies
The second pillar of ALTA’s Best Practices encourages title professionals to adopt and maintain appropriate written procedures and controls for escrow trust accounts allowing for electronic verification of reconciliation. Appropriate and effective escrow controls and staff training help title and settlement companies meet client and legal requirements for the safeguarding of client funds. These procedures ensure accuracy and minimize the exposure to loss of client funds. Settlement companies may engage outside contractors to conduct segregation of trust accounting duties.
Pam Sember, who is a business development manager for First American SMS’ trust accounting operations, said that by reviewing processes and procedures, companies may find they already have the proper policies in place. They also may find processes that need to be changed.
“Doing this will enhance your company’s culture,” she said. “Getting started can be the hardest part.”
To start documenting policies and procedures for escrow trust accounts, an electronic file needs to be created and labeled something to the effect of “Controls and Procedures.” Then, a checklist should be drafted that includes the date created and the frequency of internal control audits. All of the documents should be imaged into the Controls and Procedures file.
When creating a written document for procedures, title agents and attorneys should outline on company letterhead each procedure when handling consumer funds. Make sure to date the creation of the document. All employees that complete each task should be given a copy of the procedures and be asked to sign the document, acknowledging they agree to follow the rules as outlined.
“You will quickly fill out checklists if you align your controls and procedures with ALTA’s Best Practices,” Sember advised.
All banking account information should be documented and included in the control document. This includes escrow trust accounts, operating account, any interest-bearing accounts (including IOTA or IOTLA) and any recording or premium accounts.
“Remember to include any account that is used for consumer funds,” Sember said.
To prove your escrow trust accounts are set up properly, Sember said to create an image of bank statements, deposit tickets and a check copy for each account that is in your Control and Procedures file. The words “escrow account” or “trust account” should appear on each of these accounts.
“If they don’t, contact your bank to add these words and verify that your accounts are set up as escrow or trust accounts,” Sember added.
Signing up for Positive Pay and electronic banking, while setting up blocks for ACH and international wires are safeguards that provide another layer of protection for consumer funds.
By compiling all banking information into one document, the information can easily be updated if new accounts are opened, existing accounts are closed or a company makes changes in authorized personnel.
Transitioning to documenting procedures, Dick Reass, CEO of Ryhnoh Live, said reconciliation of escrow trust accounts can’t be performed by anyone who is authorized to approve financial transactions.
“Segregation of duties must be in place,” he added.
In addition, reconciliations should be completed in an electronic format, filed with company records and made available to underwriters. The reconciliation file should include the following:
- complete reconciliation of all accounts
- daily 2-way and monthly 3-way reconciliation exception summary with explanation
- outstanding item checklist
- deposit in transit
- bank statement(s)
- transaction reports
- trial balance
- approval document
“If you are relying on a third party to perform reconciliations, you still need to carefully review the reconciliation because you are ultimately responsible for the money on the account,” Reass said. “The money in the account is the lifeblood of your company.”
In addition, title agents need to document policies to explain any outstanding file balances and/or uncashed checks that linger for more than 180 days. Also, agents must prepare, send and image due diligence letter(s) for uncashed checks. Status of uncashed checks also should be documented.
“When preparing your controls and procedures documents, remember to include the who, what when, where and how,” Sember said. “After documenting all of your controls and procedures and saving them into an electronic file, you will be able to print and provide them when needed.”
Know What’s Considered Non-public Personal Information and Where It’s Located
The third pillar of ALTA’s Best Practices encourages companies to adopt and maintain a written privacy and information security program to protect NPI as required by local, state and federal law.
To be able to comply with this pillar of the Best Practices, it’s important to understand what constitutes NPI and where it can be found in a company, including how information is collected, acquired, stored, transmitted and disposed. The Federal Trade Commission defines NPI as:
- any information an individual gives you to get a financial product or service (for example, name, address, income, Social Security number or other information on an application);
- any information you get about an individual from a transaction involving your financial product(s) or service(s) (for example, the fact that an individual is your consumer or customer, account numbers, payment history, loan or deposit balances, and credit or debit card purchases); or
- any information you get about an individual in connection with providing a financial product or service (for example, information from court records or from a consumer report).
Examples of NPI include bank, loan payoff and credit card statements; insurance, retirement and tax information; Social Security numbers and dates of birth; and real estate/title related items, commission amounts and loan fees.
There are many sources within a company where NPI can be found. Physical locations include paper-based files, desktop or reception areas, the closing table and warehouse. With the widespread use of phones with cameras, companies should be cognizant of the documents visible at the closing table, according to Todd Hougaard of GreenFolders. If the closer steps out to get a cup of coffee, someone could use his or her phone and take a picture of the buyer’s loan application, he said.
Meanwhile, there are many electronic locations where NPI is housed. These include:
- computers, network servers, email servers, instant messaging servers, fax servers, copy machines with internal hard drives or network storage devices, web servers
- cloud storage (e.g., Google Drive, Dropbox)
- backup drives, backup tapes, online backup services
- user-provided devices/media (e.g., employee smartphones, tablets, USB storage devices)
Additionally, some of your company’s vendors may also possess and manage customer NPI. These include mobile notaries and closers, couriers, online backup services or off-site backup tape storage vendors, email service providers, and server and website hosts. Michael Volin of Title Resource Group said companies should take reasonable steps to select and retain service providers that are capable of appropriately safeguarding NPI. Volin said creating a list of all vendors can aid in this process.
Proper Recording and Pricing Procedures Helps Ensure Compliant Settlement
Adopting appropriate policies and conducting ongoing employee training can ensure that a real estate settlement company can meet state, federal and contractual obligations governing the settlement process and provide a safe and compliant settlement.
Jerry Lewallen, president of eRecording Partners Network, said it’s important for title professionals to document the recording process and designate someone who is responsible for recording documents. Implementing a tracking mechanism is helpful in providing a record of what documents were sent, when they were sent and method of delivery.
The use of electronic recording can aid in the implementation of recording procedures. Currently, nearly 900 jurisdictions in the United States accept e-recording. A list of jurisdictions accepting e-recording can be found on the Property Records Industry Association website: www.pria.us
According to Jim Degaetano, national sales director for Ingeo Systems, there are five main steps to e-recording. The first step is when the document submitter prepares a document for submission to the county recorder’s office or other appropriate agency. In order to be recorded, documents must comply with the standardized formatting requirements. The standards that apply to documents hand carried or mailed to the county recorder also apply to documents transmitted via e-recording. The document is scanned and converted into an electronic image, such as a JPEG or TIFF file. The submitter reviews the image for accuracy and then sends it to the e-record site via the Internet.
Second, e-recording providers receive the document into their system. Each provider has a system for the submitter to load the documents. This process usually includes a secure login, selection of appropriate county of recording, entering a reference value (file number), selection of a document type (warranty deed, mortgage, etc.), uploading of recordable document, review of document and submission to the county or other agency.
The county recorder or equivalent then accepts the document and accompanying data (such as fees), reviews the document and either accepts or rejects the document. If the document is rejected, the e-recording provider will return the document to the submitter along with the reason why. Common reasons for rejection are failure to comply with the county recording specifications such as margins, failure to affix revenue stamps, incorrect county selections and incorrect fees.
After the document is recorded, it is returned to the submitter. The file-marked document is made available on the provider’s website to be viewed or exported. The documents can then be saved or printed.
Last, there’s the verification step. Common methods of verification are:
- Date and time of recording is noted in file
- Reports are created to show files that do not include recording information
Patrick Curry, president of Arkansas-based WACO Title Co. said e-recording provides his company an easy way to track what documents were sent to each county and when.
“E-recording also provides a single point of settlement for the payment of recording fees,” he said. “If e-recording is not offered in your local county, contact the recorder’s office and ask when it will be. Since most county recorders are elected, if you current recorder is not interested, look for a candidate who is interested in the use of technology. The time for getting a document e-recorded is typically hours while the paper process can take days to weeks.”
Curry added that once a document is recorded, it is important to include that information in the order file.
“You would want to include the document number from the recording office, the date the document was recorded and the fees actually paid,” he said. “At this point you would also want to compare the fees that were collected at the closing with the fees actually charged by the county.”
Judi Souza, owner of California-based Escrow Expertise, urged title professionals to use rate manuals and online calculators, as appropriate, to make sure correct fees such as title insurance premiums, state-specific fees and endorsements are charged.
“Prior to settlement, your staff should be adept at calculating the accurate amount to be collected for recording charges and associated transfer fees,” Souza said. “These are established by the governmental agencies and the precise charges should be accurately reflected in the consumer settlement statements.”
Three areas in which costs can easily be obtained are wire transfers of funds, overnight delivery fees and notary services, she added. Financial institutions handling trust funds can inform your company of any fees they may charge for incoming and outgoing wire transfers of funds. Meanwhile, notary fees are state-regulated and the amounts to be paid through settlement are submitted by the notary public or a document signing service.
“The ultimate responsibility rests with your company,” Souza said. “The need for refunds is greatly reduced when appropriate pricing procedures are followed at the beginning. Periodic review and an internal audit of files can ensure actual fees and costs, without inflation, were being passed on to the consumer and reflected accurately at settlement.”
Understanding Professional Insurance Coverage
With insurance providers leaving the market and rates continuing to increase, it’s important for title professionals to understand their policies, maximize coverage and minimize cost.
With claims remaining high, insurance carriers are taking action to lower liability. First, deductibles are increasing. According to Adam Gwaltney of Ritman & Associates, the $5,000 deductible is “going the way of the dodo bird. The industry is moving toward $10,000 to $20,000 deductibles. They want you to have skin in the game.”
Also, insurance carriers are implementing minimum revenue requirements for new accounts and renewals. Gwaltney said this means if companies don’t generate a certain amount in revenue, they will get rejected for coverage. There also are maximum revenue requirements. “They are narrowing the box to reduce risk,” Gwaltney said.
Additionally, policies are excluding specific services and carving out coverage. This is where a lack of understanding about the title insurance industry by the professional insurance agent can get clients into trouble. Policies may only provide coverage for the named insureds and exclude the use of contract workers and lawyers. Title agents are encouraged to review their policy to determine if independent contractors are covered. If not, ask the carrier to consider adding coverage. If the insurance carrier refuses, Gwaltney encourages title agents to shop for coverage.
Some policies may require a written contract of services and expectations between the title agency and any independent contractors. This should include an outline of services to be rendered, payment structure and risk management required by the title company for the contractor. Some E&O policies may require independent contractors to carry their own insurance.
“Reducing and mitigating the IC risk up front will aid you in the event of a claim generated by an independent contractor,” Gwaltney said.
David Townsend, CEO of Agents National Title Insurance Co., reminds ALTA members that errors and omissions insurance are claims-made policies. This means a title company must have coverage in place when a claim is made and reported. The retroactive date is the linchpin as this is when coverage begins. This date will be noted in the policy on the declarations page or on an endorsement. There is no coverage for professional services prior to the retro date. If there’s a lapse in coverage, the retro date could be lost.
Townsend encourages title agents to review their underwriter contract to see if it requires E&O coverage and retroactive dates.
Policies are designed to cover professional services for a title agent, title abstracter, searcher, escrow officer, closing agent, public records searcher and corporate document searcher.
Tips for title professionals:
- Be alert and cautious to insurance agents who don’t understand claims-made coverage or professional liability insurance. Working with an insurance agent who doesn’t understand the intricacies of claims-made insurance can place a title agent’s business at risk.
- Read the policy and understand the endorsements.
- Clearly identify and understand the exclusions under the policy.
- Understand the information contained in the declarations page.
Meanwhile, fidelity bond coverage—also known as crime protection coverage—provides coverage for dishonest and fraudulent acts of employees in handling money or other securities. These claims-made policies generally only cover employees, while owners are not covered. Directors or officers of the company may not be covered, but expanded coverage can be obtained.
Some fidelity bonds or crime policies require a conviction before payment, according to Townsend. This means a title company must initially cover the loss and will get reimbursed if there’s a conviction.
When shopping for a fidelity bond, you will need to consider the deductible, the number of transactions, the average transaction size and the number of offices to be covered. Fidelity bond providers will analyze several factors, including the number and size of transactions, number of employees, procedures and internal controls and wire procedures, how long the company has been in business and any claims history.
Procedures for Resolving Consumer Complaints
A written complaint handling policy is a good way to ensure that issues are taken seriously and dealt with appropriately and consistently. ALTA’s Best Practices encourages members to adopt and maintain procedures for resolving consumer complaints.
A process for receiving and addressing consumer complaints is important to ensure that any instances of poor service or non-compliance do not go undiscovered.
ALTA members should make it easy for customers to contact their company by ensuring contact information—whether it’s a phone number or email address—can easily be found on the company website.
As a suggestion, ALTA members can use the Better Business Bureau (BBB) Code of Business Practices as a guide to develop a consumer complaint process. A portion of the code advises companies to handle consumer complaints by being responsive and addressing marketplace disputes quickly, professionally and in good faith.
Jeremy Yohe is ALTA's director of communications and can be reached at firstname.lastname@example.org