Title Insurance and Settlement Company Best Practices. American Land Title Association

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1 Title Insurance and Settlement Company Best Practices American Land Title Association

2 Current Forces at Work Dodd Frank Wall Street Reform & Consumer Protection Act of 2010 Established the Consumer Financial Protection Bureau (CFPB)

3 Our New Regulator Mission: to make markets for consumer financial products and services work for Americans whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.

4 CFPB First regulatory body focused on the CONSUMER!

5 Emphasized Existing Regulatory Guidance Regulatory Guidance to Lenders on Service Providers Office of Comptroller of Currency 2001 (updated Nov. 2013) Federal Deposit Insurance Corp Federal Government and state attorneys general CFPB Bulletin - April 2012 Federal Reserve December 2013

6 Market Forces that may affect you and your customers! Federal Regulators Remind Lenders of Their Liability CFPB Enforcement Actions American Express - $85 million Discover - $200 million Capitol One - $210 The Message Lenders are responsible and liable for acts of third party providers that harm consumers

7 Lender Concerns FINANCIAL ENFORCEMENT REPUTATIONAL

8 Protecting the Consumer is Everything CFBP Complaint Process Complaint Portal on Homepage

9 What Can Be Done? Determine Your Business Partners Talk to Your Lender Clients What are they concerned about with third-party oversight Tell them about your compliance program Discuss the New Mortgage Disclosures

10 ALTA Responds Voluntary Tools and Resources for our industry to provide transparency in the protection of funds and non public private information Standardize an Assessment Process EMPHASIZE THE PRACTICES OF OUR AGENTS

11 Best Practices 1. Establish and maintain current licenses as required 2. Written procedures & controls for trust accounts 3. Physical & network security protect money & confidential customer information 4. Ensure consistent pricing & refund overpayments (if they happen) & record documents in a timely manner 5. Deliver title policies, report & remit premium in a timely manner 6. Professional liability insurance & bonding 7. Respond to consumer complaints in a timely manner For more information, go to

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13 Best Practices Establish and Maintain Current License(s) as Required Purpose: Maintaining state mandated insurance licenses and corporate registrations (as applicable) helps ensure the Company remains in good standing with the state. Procedures to meet this best practice Establish/maintain applicable business license(s) Comply with licensing, registration or other requirements with applicable state regulatory body ALTA Policy Forms license

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15 Other Considerations Notary Public Continuing Education Certifications Continuing Legal Requirements Escrow and/or Closing Licenses Abstractor, Searcher, Examiner Licensing

16 And The Money!

17 Best Practices Written Procedures and Controls for Escrow Trust Accounts Purpose: 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 help ensure accuracy and minimize the exposure to loss of client funds. Procedures to meet this best practice Monthly three way reconciliations Separation of duties Employee background checks

18 Procedures to meet this best practice: Escrow funds and operating accounts are separately maintained. o Escrow funds or other funds the Company maintains under a fiduciary duty to another are not commingled with the Company s operating account or an employee or manager s personal account.

19 Escrow Trust Accounts are prepared with Trial Balances Trust Accounts are separate from operating Daily reconciliation of receipts and disbursements Monthly Three Way Reconciliation Segregation of duties to assure reliance of reconciliation Review of Reconciliation by management Electronic access of reconciliation for underwriter

20 Employee Management Background checks at hiring and recurring every 3 years Limit access to escrow funds to only authorized and trained employees Ongoing training program for both new and existing employees

21 Protection of Trust Accounts Account identified as Trust or Escrow accounts on statements, checks, deposit tickets Utilize Positive Pay or Reverse Positive Pay Implement International Wire Blocks Maintained in Federally Insured Institutions Use separate computer for banking with access limited to authorized employees only

22 Workbook Example Best Practice # Adopt and maintain appropriate written procedures and controls for Escrow Trust Accounts allowing for electronic verification of reconciliation. ESCROW TRUST ACCOUNT CONTROLS Are escrow funds or other funds the Company holds in a fiduciary capacity kept separate from the Company s operating accounts and the personal accounts of managers and employees? Describe the controls and procedures the Company has in place for ensuring that escrow funds and other funds held in a fiduciary capacity are kept separate from the Company s operating accounts and the personal accounts of managers and employees. Are all Escrow Trust Accounts properly identified as either an escrow or trust account on all account-related documentation including bank statements, bank agreements, disbursement checks and deposit tickets? Is the control / procedure included in the Company s existing written procedures? Is compliance with control / procedure YES NO Descriptions/Comments documented? Example: Funding checks are restrictively endorsed "for deposit only" to the escrow trust account immediately upon receipt.

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24 Best Practices Written Privacy and Information Security Program to Protect Non-Public Personal Information Purpose: Federal and state laws require title companies to develop a written information security program that describes their procedures to protect nonpublic customer information. The program must be appropriate to the company s size and complexity, the nature and scope of the company s activities and the sensitivity of the customer information the company handles. Gramm Leach Bliley Reasonable procedures based on company size and book of business Procedures to meet this best practice Physical & network security Disposal of company records Disaster management plan

25 Pillar 3: Physical and Network Security

26 o Develop guidelines for the appropriate use of Company information technology. ie internet access, surfing, downloads o Ensure secure collection and transmission of Non-public Personal Information.

27 Data Security o Prohibit or control the use of removable media. Cell phones, ipads, thumb drives o Use only secure delivery methods when transmitting Non-public Personal Information. Encryption.

28 Internal Controls Printing before or after hours Clean Desk Policy Access to controlled areas Mail Boxes Fed Ex/UPS Pickup sites

29 Disposal of Data Copy Machines FAX machines Recycled equipment Paper, paper and paper!

30 Disaster Management Plan Prepare for the worst! Fire, flood, break-in Data Breach Employee Theft

31 Oversight of 3 rd Party Vendors Software vendors Delivery services Janitorial Services Landlord access to offices Mobile Notaries

32 Best Practices Adopt Written Policies Ensuring Compliance with Federal and State Consumer Financial Laws (as applicable) Purpose: Adopting appropriate policies and conducting ongoing employee training helps ensure a real estate settlement company can meet state, federal and contractual obligations governing the settlement process and provide a safe and compliant settlement. Procedures to meet this best practice Submit documents for recording within 2 days of closing Procedures to ensure consumers are charged established rates Post closing quality check

33 Policies in place to assure that appropriate rates and fees are charged Are your employees trained to use those rates and fees Do you document rates and fees in your files

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35 Lenders are tracking the performance of title and settlement companies to look for red flags. Timely delivery of closing package Timely Pay-off Timely Recording Greater scrutiny on VA loans, reverse mortgages, co-op loans.

36 How do you manage? Policies and Procedures in place for processing of recordings Training for your employees Use of delivery or third parties for recording Appropriate charges for recording fees Timely refunds to consumers

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38 Best Practices Adopt Written Procedures Related to Policy Production, Delivery, Reporting and Premium Remittance Purpose: Appropriate procedures for the production, delivery and remittance of title insurance policies helps ensure title companies meet their legal and contractual obligations. Procedures to meet this best practice Policies delivered within 30 days of closing/settlement Premiums remitted by last day of month a closing/settlement

39 You and Your Underwriter Premium funds - separate trust account Policy for tracking and remitting Policy Issuance Training and process to implement!

40 Best Practices Maintain Appropriate Professional Liability Insurance and Fidelity Coverage Purpose: Appropriate levels of professional liability insurance ensure that title agencies and settlement companies have the financial capacity to stand behind their professional services. Procedures to meet this best practice Professional liability or E&O insurance Fidelity/Surety coverage as required

41 Its Your Business What s required by State or Underwriter Are Coverages Adequate? Are they renewed timely? Fidelity E and O Coverages Cyber protection

42 Insurance Information Copy of declarations page of E/O or Professional Liability insurance Evidence of other insurance maintained by the Company Procedures in place for timely renewal or replacement

43 Best Practices Adopt and Maintain Written Procedures for Resolving Consumer Complaints Purpose: A process for receiving and addressing consumer complaints helps ensure reported instances of poor service or non-compliance do not go undiscovered. Procedures to meet this best practice Standard complaint form Single point of contact Maintain log of complaints and resolutions

44 Pillar 7: Customer Complaints CFPB Complaint Process Complaint Portal on Homepage Establish a Process for Recording Complaints Have a Single Responsible Party for Managing Process Keep a Log Complaint Made with Date Person Responsible for Follow Up Issue Resolved

45 CFPB Serious about Consumer Complaints 119,000 complaints files since 2011 on mortgage Strict requirements of lenders to follow up How do you answer the lenders inquiry regarding their borrower?

46 THE CONSUMER! Your buyers and sellers The LENDER S BORROWER! Pillar 7 - Adopt and maintain written procedures for resolving customer complaints!

47 CFPB Director Cordray to U.S. Conference of Mayors January 22, 2014 Complaints are not only opportunities for us to help specific people; they also make a difference by informing our work and helping us identify and prioritize problems. We know that if we hear about a particular problem from fifty consumers, it likely looms larger than if we hear about it from two. We know that if we begin to see a disturbing trend, we should consider allocating some of our limited resources to combat that particular problem.

48 Assessment Procedures What is the Assessment? How does it work? Who will conduct these assessments? How often do I need to undergo an Assessment?

49 What should you be doing right now! Talk with your lender customers! Ask questions about their RISK management processes and procedures How are they evaluating 3 rd party service providers? Conduct YOUR self assessment!

50 Self Assessment ALTA Board of Governors urges that all agents complete Self Assessment before September Identifies weaknesses or missing elements Can be used as a marketing tool!

51 Assessment Example Assessment Procedure Number ALTA Best Practices Framework: Assessment Procedures ALTA Best Practice 1: Establish and maintain current License(s) as required to conduct the business of title insurance and settlement services. 1.01* Confirm the active status of the Company and/or individual Licenses/registrations for each state in which the Company conducts business. Validate compliance with ALTA Policy Forms Licensing Requirement. Documentation reviewed may include actual licenses, Department of Insurance or appropriate state regulatory agency websites/screenshots, Bar Association status, corporate or business registrations with the state and other documentation as applicable to state/license. Sample Selection: Assessment Recap Overall Assessment Recap: If any individual procedure marked with an asterisk FAILS, Best Practice 1 FAILS. PASS / FAIL 100% of all required licenses and corporate registrations in all states in which Company operates on assessment date. View Company s active ALTA Policy Forms License or verify compliance on ALTA website.

52 Certification Package Three-Part Product: 1. Open letter to customers 2. Certificate 3. Copy of insurances

53 Certificate From the company that conducts the assessment to the title company Two parts Information Security and Privacy Everything else Like audits, it is not intended to be relied upon by anyone other than the Company itself

54 BEST PRACTICES Scalable and designed for YOUR business Needs to be written down never reviewed to meet academic standards but does it reflect what happens in your office? Ongoing training of your staff Never finished but will evolve with business practices and standards and market demands!

55 Workbook Assessment Preparation Workbook Tool for title companies to assist in understanding readiness for the Best Practices assessment. Easy question and answer format Provides guidance on each of the Best Practices.

56 How Do I Get Started First step is the most difficult Gather your team Review the practice you have already

57 Challenge to Each of You Pillar 1: Licensing What is required in your state? Gather what you have and start your BP File Pillar 6: Insurance and Fidelity Gather your policies, identify renewal dates, update coverage

58 Moving Forward Written policy and procedures What did you do to create the file that can be your procedures Identify maintenance and expansion Requirement for new employees Renewal for existing employees

59 Remember you need to be: Talking with your lender customers! Asking questions about their RISK management processes and procedures How are they evaluating 3 rd party service providers? Conducting YOUR self assessment!

60 Tools Assisting Members ALTA website: Best Practices Framework Articles about Best Practices FAQs TitleNews Online: Every Thursday Webinars on Best Practices questions to

61 Assisting Members

62 Disclaimer This information is not a substitute for legal advice, is for your reference only, and is not intended to represent the only approach to any particular issue. This information should not be construed as legal, financial or business advice, and users should consult legal counsel and subject-matter experts to be sure that the policies adopted and implemented meet the requirements unique to your company.

63 Questions?