Tips on Documenting Your Escrow Trust Account Policies

December 31, 2013

The second pillar of ALTA’s “Title Insurance and Settlement Company 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.

To get started document policies and procedures for escrow trust accounts, Pam Sember of First American SMS says an electronic file needs to be created and labeled something to the effect of “Controls and Procedures.” Then, a checklist should be created that includes the date created and the frequency of internal audits of controls. 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 each procedure when dealing with or handling consumer funds on company letterhead, including date of creation. The names of all employees that complete each should procedure and they should also sign the document acknowledging they agree to follow the procedures.

“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 image bank statements, deposit tickets and a check copy for each accounts that is in your Control and Procedures file. The words “escrow account” or “trust account” should appear on each of these documents.

“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 set 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 information can easily be updated if new accounts are opened or closed or changes in authorized personnel.

Transitioning to documenting procedures, Dick Reass of RynohLive said reconciliation of escrow trust accounts can’t be performed by an authorized approve of 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. What should be included in the reconciliation:

  • complete reconciliation
  • daily 2-way/daily 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 explaining why they may have outstanding file balances and/or uncashed checks 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 saved them into an electronic file, you will be able to print and provide them when needed.”

Contact ALTA at 202-296-3671 or [email protected].