In the race for the most polished resume in the title industry, organizations that comply with and are certified in the American Land Title Association (ALTA) Best Practices Framework: Title Insurance and Settlement Company Best Practices (“ALTA Best Practices” or the “Framework”) have a competitive advantage—and the type of engagement and procedures performed matter to lenders. Therefore, title companies, settlement companies, title agents, closing attorneys, closing agents, and real estate settlement attorneys or professionals (collectively referred to herein as “title agents”) need to take a deeper dive into the Framework and clarify some logistics before the start gun sounds on their own ALTA certification process. With that in mind, this article answers six frequently asked questions.
FAQ #1: The Rule Book
Is ALTA Best Practices compliance mandatory?
The ALTA Framework is currently a voluntary tool that title agents can use to put their best foot forward with the residential lending community. Following the Framework helps these companies ensure they are complying with industry best practices. However, certain lenders are beginning to require third-party verification of ALTA Best Practices to stay on their “Approved List” to settle residential real estate mortgages. Further, obtaining third-party ALTA Best Practices certification indicates to lenders, borrowers, and title insurance underwriters (Underwriters) that your company has taken the necessary actions to address legal and regulatory compliance and protection of consumer personally identifiable information, personal private information, personal private data or non-public personal information (collectively herein referred to as “NPI”). The Consumer Financial Protection Bureau (CFPB) requires lenders to maintain a monitoring system for their third-party service providers (e.g. title agents) to ensure that they are complying with federal consumer financial laws. Lenders must document those measures for all their title agents or potentially face fines and enforcement actions by the CFPB.
FAQ #2: The Starting Blocks
What are the seven pillars of the ALTA Best Practices?
- Licensing. Establish and maintain state-level business license(s) as required to provide title insurance and settlement services.
- Escrow accounting procedures. Adopt and maintain appropriate effective controls and procedures for escrow trust accounts that allow electronic reconciliation verification.
- Privacy and information security program. Adopt and maintain an appropriate written information security program to protect customers’ NPI, as required by local, state, and federal law.
- Settlement procedures. Adopt standard real estate settlement policies and procedures that help ensure compliance with federal and state consumer financial laws, as applicable to the settlement process.
- Title policy production and delivery. Adopt and maintain written procedures for title insurance policy production, delivery, reporting, and premium remittance.
- Professional liability insurance coverage. Maintain appropriate professional liability and fidelity insurance coverage.
- Consumer complaints procedures. Adopt and maintain written procedures for resolving consumer complaints.
FAQ #3: The Start Line
Where should I start the ALTA Best Practices compliance process?
Through a CRI Readiness Assessment, you need to assess your current level of compliance. Utilizing CRI’s Readiness Assessment Tool, we can provide you with a gap analysis and remediation plan to mitigate identified deficiencies. Should you need additional remediation assistance, we can advise you further but cannot perform the actual remediation work ourselves because we must maintain professional independence.
FAQ #4: The Line-Up
How is an ALTA Best Practices Assessment performed?
Currently, some lending institutions allow for self-certification. In those cases, management generally will provide certification or statement attesting to their compliance with the relevant rules and regulations, as requested by the lending institution.
Other lenders are requiring a third-party to assess the company’s compliance with ALTA Best Practice requirements. We believe that CPAs are most appropriately suited to provide that type of assurance relating to management’s compliance efforts. The AICPA has various normal and traditional service options that satisfy these needs—such as consulting services, review services, examination services, or agreed-upon procedures (AUP) services.
Here are a few details about each type of service available.
1. A consulting engagement could be used in multiple capacities; for example, it could be used to assist in a readiness assessment or a special project to provide a consulting report related to management’s efforts. Note: The consulting report provides no “assurance” regarding management’s efforts. An ALTA CPA firm can provide different levels of assurance depending on the title agent’s needs.
2. A review gives lenders a limited level of assurance on the company’s ALTA Best Practices compliance. Because small agents are often less risky to a lender based on their risk management policy (which normally involves an assessment including, but not limited to, number of closings, number of offices/locations, number of escrow accounts, number of employees, etc.), it is most likely that lenders will require a review report.
3. An agreed-upon procedures (AUP) report describes the procedures performed and results of those procedures; it provides lenders with more assurance than a review, but less than an examination. Again, based on their risk management policy, many lenders will require AUPs from medium-sized title agents. For the AUP report, any lenders who you are providing the report to will need to agree that the ALTA Best Practices Assessment Procedures performed meet their requirements and, along with the title agent, take responsibility for the sufficiency of the procedures. We believe the AUP report does present some unique benefits that are worth considering for engagements of all sizes. For instance, it is the easiest to align with the existing ALTA Best Practices Assessment and provides transparency to the lending institutions that receive the ALTA certifications.
4. An examination involves more detailed procedures and provides a high level of assurance to the lender. Large agents, who are considered a high risk by their lenders, would be most likely required to have an examination level assurance of their compliance.
FAQ #5: The Judges
What is the difference between small and medium-to-large agents with respect to ALTA compliance?
Ultimately, the lenders and the CFPB will decide on the specific parameters that determine what size title agent you are. Title insurance underwriters feel a small title agent is one that originates 400 or fewer loans per year, has only one or two offices, one to two escrow bank accounts and has fewer than 10 employees. Large title agents would generally close greater than 2,000 loans annually, and medium-sized title agents would fall in between.
FAQ #6: Conditioning
How often is the ALTA certification process required?
ALTA has proposed a voluntary 24-month certification reporting cycle, but it is up to the lenders to decide on the frequency based on their risk management profiles. In the end, the CFPB will have to agree regarding the frequency, as well.
The Coaches: How an ALTA Elite Provider Can Help You Get the Blue Ribbon
If you are ready to gain a competitive edge with ALTA Best Practices compliance, then the first step is to show up for trials. Inventory your current procedures and complete a readiness assessment. Note what you’re already doing—and not doing—so that you can devise an appropriate training plan toward full compliance; don’t forget about the documentation. We often see clients that are complying with certain requirements, but simply don’t have the document that allows for a third-party to verify compliance.
CRI is an ALTA Elite Provider that has been serving clients in the lending community for years. We thoroughly understand the regulatory environment that has prompted the development of this set of industry practices, and we offer the professional guidance needed to implement and verify them. Contact us for a CRI Readiness Assessment of your current procedures or to begin the ALTA Best Practices certification assurance process.