NCClosingAttorneyBestPractices.org. relanc.com

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2 Made Possible By a Grant From:

3 Webinar Series: Attorneys Helping Attorneys! Series of Webinars Next One => IT Security Compliance, NPI, Encryption January 28, 2:00 PM

4 Your Moderators: Elizabeth Harrison, Esq. Graduate of University of North Carolina (BA 1991) Graduate of Campbell University School of Law (JD 1995) Principal in the Firm of Elizabeth R. Harrison, Attorney at Law P.C. (Raleigh, North Carolina) Chair of the North Carolina Real Property Section of the NC Bar Assoc. Chair of the North Carolina Attorney Best Practices Task Force Member of Real Estate Lawyers of North Carolina (RELANC) Jonathan W. Biggs, Esq. Graduate of Duke University (AB 1987) Wake Forest University School of Law (JD 1990) Principal in Firm of Stubbs, Cole, Breedlove, Prentis & Biggs, PLLC ( ) (Durham, North Carolina) Vice President of Risk Management at Investors Title Insurance Company Member of the ALTA Best Practice Task Force Member of the ALTA Technology Committee Member of the North Carolina Attorney Best Practices Task Force Member of the North Carolina Real Property Section of the NC Bar Assoc. Member of Real Estate Lawyers of North Carolina (RELANC)

5 Your Guest Speaker: Richard Dick Reass Chief Executive Officer and Founder, Reliant Title and RynohLive NCClosingAttorneyBestPractices.org He is a graduate of the University of Texas and his Navy career was bookended by combat in Vietnam and Desert Storm. Commands at sea included serving as Commodore of the 16 ship multinational force during Desert Storm. Dick's final assignment was as director of Management Information Systems in Washington, D.C. Richard M. (Dick) Reass is the president and founder of Reliant Title as well as Segin Software LLC. His passion for process improvement and innovative problem solving was the catalyst for developing RynohLive, once Reliant Title was well established. Dick describes himself as a re-engineered Naval Officer whose banker wife thought that starting a title agency would be a great way to keep him out of trouble once he had retired from the Navy. Little did she realize what would evolve! His vision of process improvement and systems integration led to the step-by-step development of RynohLive for escrow and trust account security and protection ALTA Best Practices ALTA Technology and Closing Committees

6 Regulatory Requirements Lender Requirements ALTA Best Practices Today s Environment CYBER FRAUD Check Fraud / Wire Fraud / Mortgage Fraud Employee Embezzlement / Owner Escrow Theft CFPB (Dodd Frank) CFPB Ruling OCC Bulletin NAIC Model Acts 230 & 628 Lender 3 rd Party Liability Legislative Changes

7 ALTA Best Practices Framework Title Insurance and Settlement Company 1. Licensing 2. Escrow Standards 3. Security Standards: Physical, IT, NPPI 4. Settlement Procedures 5. Title Policy Delivery, Charges, Remittance 6. Insurance (E&O, Cyber, Fidelity, Surety) 7. Complaint Resolution

8 Regulatory Requirements Lender Requirements ALTA Best Practices Lenders Already Requiring Compliance Today s Environment

9 Adopt and maintain appropriate written procedures and controls for Escrow Trust Accounts allowing for electronic verification of reconciliation. These controls help meet client and legal requirements for safeguarding client funds. ALTA Best Practices Escrow Best Practices Daily Reconciliation Requirement Positive Pay File Balance Documentation Electronic Access for Underwriters

10 ALTA Best Practices Electronic Verification Systems (EVS) EVS compare items through electronic means to ensure the validity of the item/ document being submitted for review or analysis. Does the underlying data held by the bank and accounting system support the reconciliation results? An electronic copy of a reconciliation statement is simply another form of paper that cannot be analyzed for accuracy

11 Daily Daily 3-Way Reconciliation o #1 Defense Against Fraud o Match Bank Balances to Book Balances o 3rd way: Individual Settlement Files Each Settlement File = Sub Escrow Account Can t take from Jones to pay for Smith o Businesses Banking Regs Different Online Posting - 24 hour rule Transaction Notification

12 Daily Reconciliation o o o Summary Page Bank/Sweep Statement Outstanding Deposit List Outstanding Check Report Trial Balance Debits & Credits = Bank and Book Red Flags Stale Dated Checks Undisbursed Funds Outstanding Deposits Negative File Balances Be able to present a daily report

13 Training & Records Written Procedures Pre-Closing File Balance Check Endorsement Good Funds v. Collected Funds Deposit (In Transit = RESPA Violation) Dealing with IRS Liens Pacer Search Patriot Search SSN Verification Identity Verification FIRPTA

14 Written Procedures Post Closing Pacer Search Bring down Ledger Card-File Balance-HUD Check Payees Check Signing & Wiring Check Reissue Stop Payment Training & Records

15 Written Procedures Settlement Software Controls Permissions Freeze Files Logins Industry Standard Software Training & Records

16 Written Procedures Unclaimed Property Stale Dated Check Follow-up Undisbursed funds Escrow Agreements Interpleading Funds Escheatment (5 year property) Training & Records

17 o What are the 3-4 greatest risks from the outside? o What are the greatest risks from insiders? (Closers, Wi-Fi, computers, etc.) o Verification and Validation Expect what you Inspect!

18 o What are the 3-4 greatest risks from the outside? o What are the greatest risks from insiders? (Closers, Wi-Fi, computers, etc.) o Verification and Validation Expect what you Inspect!

19 Positive Pay o Defense Against Check Fraud Banking Software that matches: Check # Check Date Dollar amount

20 Positive Pay o Defense Against Check Fraud Banking Software that matches: Check # Check Date Dollar amount Payee

21 Disburse Collected Funds o Good Funds Collected Funds Good Funds Settlement Definition Only Banking Regulation CC Available Funds or Collected Funds Expedited Funds Availability Act 1987 Collected Funds Irrevocably Credited Statute Definition v. Bank Definition NC Good Funds Settlement Act 45A-3&4 Underwriter Guidelines o Limit Good Funds Illinois and North Dakota $50,000 Indiana and Utah $10,000 Idaho $1,000 NCClosingAttorneyBestPractices.org Settlement Funding Legislation Needed

22 o o o Computer Technology Simplifies Hard to Visually Identify Beware of: First-time client Asks for refund of excess funds Deal Falls Through - wire refund! Canadian Bank

23 Follow the Money Follow-up after 3-4 days for: Payoffs & Recordings Follow-up after 10 days for: Government entities (taxes) Service providers (hazard and flood). Follow up after 30 days for: Disbursements greater than $1000. Follow up after 45 days for all other disbursements.

24 Escrow Security o Industry Software o Administrative Controls Ability to Limit Functions Freeze Files Written Procedures o Segregation of Duties o Daily Reconciliation o Strong Passwords o Dual Authentication NCClosingAttorneyBestPractices.org

25 Cyber Security o Secure Service o Biometric Access Device o Strong Passwords Master Passwords o Internet Controls o Firewalls o Browser s o Training, Training, Training

26 CYBER ALERT - A New Variant Zeus Botnet and Zero Access Rootkit o Attack on Settlement Software No Administrative Controls Created Files Transferred Funds Posted Checks o Daily Reconciliation Prevented Escrow Analysis Careful Review Potential Loss ~$2,000,000

27 CYBER ALERT - A New Variant Zeus Botnet and Zero Access Rootkit o NPPI Aspects >10,000 Settlement Files SSN s Bank Account Numbers Investment Account Info o Credit Card Numbers FTC Reporting Requirements?

28 Online Banking Requirements NACHA & FBI Guidelines Dedicated Stand Alone Computer Banking Only Use No Java No Adobe No Flash Malware Protection Automatic Updates Strong Authentication Dual Controls

29 Control Web Access Browser Selection NCClosingAttorneyBestPractices.org Avoid Internet Explorer (Personal Choice) Speed - Security - Functionality Active X for Closing Packages Eliminate Advertising (Adblockplus.org) Keep Plugins up to date o Java-Flash Player-Adobe Reader Firewalls & Routers Lockdown Computer Internet Access

30 Secure o Encrypted Protects NPPI Sarbanes-Oxley Requirement Lender Requirement Best Practices o Easy Affordable First Step

31 Who else is reading your ? These pictures were taken in 1975, and kept in a folder in my attic for 38 years. In April 2013, I scanned the pictures and ed them to a friend in Florida They were on the web 5 days later! Latest Scam Revised wire instructions

32 Nothing to be Learned There is nothing to be learned from the second kick of the mule!

33 Thank you for Participating. Any questions?