2017 Annual Recertification and Self-Assessment Survey

Transcription

1 Self Assessment Tips 1. Effective July 1, 2012, all attorney title agents must maintain a separate real estate only trust account. Sec (8), F.S., effective July 1, 2012, requires attorneys to maintain a separate trust account for real estate transactions and to permit their title insurers to audit such trust account. 2. Trust and Escrow Account Reconciliations MUST be performed on a monthly basis. If accounts are not reconciled, your practice or agency may be exposed to the following risks: Title Agencies: Section 69O , F.A.C. requires every licensed title agency to reconcile each escrow account every month. Copies of the reconciliations are required to be submitted to each of the agency s underwriters. If escrow account reconciliations are not performed, your title agency is subject to action by the Department of Financial Services. In addition, failure to reconcile your escrow account inhibits you from being able to timely detect errors in closing procedures, recordkeeping and/or fraudulent activity within the escrow account. Law Practices: Florida Bar Rule 5-1.2(c) requires attorneys to reconcile each trust account monthly. If trust account reconciliations are not performed, you may be subject to action by the Florida Bar. In addition, failure to reconcile your trust account inhibits you from being able to timely detect errors in closing procedures, recordkeeping and/or fraudulent activity within the escrow account. We recommend that you reconcile your trust or escrow account monthly to ensure compliance with the Florida Administrative Code and/or the Rules Regulating the Florida Bar. A three-way reconciliation (adjusted bank balance = checkbook balance = escrow file trial balance) should be performed, and accounts that are not in balance should be researched timely to clear any unreconciled amounts. Any identified shortages must be funded as soon as possible. For assistance with performing a proper three-way reconciliation, please send an to selfassessmentsurvey@thefund.com. page 1 of 10

2 3. Assure that your reconciliation contains all of the required reports. A complete reconciliation consists of the following reports: 1. Reconciliation Summary 2. Bank Statement (including cancelled checks, front and back) 3. Outstanding Check list - checks that have been written but have not cleared the bank 4. Outstanding Deposit list - also called Deposits in Transit deposits that are entered into your checkbook, but have not cleared the bank 5. Trial Balance Report list of all files with balances other than $0 (positive or negative), and the amount in your trust account allocated for each file. Failure to have all of the reconciliation reports may not be in compliance with Rule 5-1.2(c) of the Rules Regulating the Florida Bar which states that the following should be performed monthly: reconciliations of all trust bank or savings and loan association accounts, disclosing the balance per bank, deposits in transit, outstanding checks identified by date and check number, and any other items necessary to reconcile the balance per bank with the balance per the checkbook and the cash receipts and disbursements journal; and (B) a comparison between the total of the reconciled balances of all trust accounts and the total of the trust ledger cards or pages, together with specific descriptions of any differences between the two totals and reasons therefore. If the Outstanding Check and Deposit lists are not compiled and reviewed, misdirected or unpaid items may not be discovered, resulting in trust account shortages, additional interest and penalties, and potential title insurance claims. We recommend that your three-way reconciliation contain all of the required reports. We also recommend that the Outstanding Check list and Outstanding Deposit List be reviewed and any items of concern receive immediate follow up. page 2 of 10

3 4. Perform a three-way reconciliation and ensure that all amounts match. The three-way reconciliation is designed to ensure that the cash in the bank covers your escrow liability (adjusted bank balance = checkbook balance = escrow file trial balance). If the escrow file trial balance shows an amount GREATER than the adjusted bank balance, a shortage exists and should be funded immediately. If a three-way reconciliation is not performed, your practice or agency may be exposed to the following risk: Title Agencies The three-way reconciliation (adjusted bank balance = checkbook balance = escrow file trial balance) is essential in escrow accounting, as performing it ensures that one has sufficient funds in one s bank account to cover the escrow liabilities, and that the total of the escrow liabilities assigned to the individual client files matches one s checkbook register. If the three-way reconciliation is not performed, accounting errors, mispostings and shortages could go unnoticed. Law Practices This practice may not be in compliance with Rule 5-1.2(c) of the Rules Regulating the Florida Bar which states that the following should be performed monthly: reconciliations of all trust bank or savings and loan association accounts, disclosing the balance per bank, deposits in transit, outstanding checks identified by date and check number, and any other items necessary to reconcile the balance per bank with the balance per the checkbook and the cash receipts and disbursements journal; and (B) a comparison between the total of the reconciled balances of all trust accounts and the total of the trust ledger cards or pages, together with specific descriptions of any differences between the two totals and reasons therefore. We recommend that you perform a three-way (adjusted bank balance = checkbook balance = escrow file trial balance) reconciliation on a monthly basis and ensure all three amounts match. Perform a two-way (checkbook balance = escrow file trial balance) reconciliation weekly and ensure the two amounts match. For assistance with performing a proper threeway reconciliation, please send an to selfassessmentsurvey@thefund.com page 3 of 10

4 5. Ensure that the trust / escrow account reconciliations are always current. If trust / escrow account reconciliations are not current, your practice or agency may be exposed to the following risk: Title Agencies: Section 69O , F.A.C. requires every licensed title agency to reconcile each escrow account every month. Copies of the reconciliations are required to be submitted to each of the agency s underwriters. If escrow account reconciliations are not performed, your title agency is subject to action by the Department of Financial Services. In addition, failure to reconcile your escrow account inhibits you from being able to timely detect errors in closing procedures, recordkeeping and/or fraudulent activity within the escrow account. Law Practices: Florida Bar Rule 5-1.2(c) requires attorneys to reconcile each trust account monthly. If trust account reconciliations are not performed, you may be subject to action by the Florida Bar. In addition, failure to reconcile your trust account inhibits you from being able to timely detect errors in closing procedures, recordkeeping and/or fraudulent activity within the escrow account. We recommend that you reconcile your trust or escrow account monthly to ensure compliance with the Florida Administrative Code and/or the Rules Regulating the Florida Bar. A three-way reconciliation (adjusted bank balance = checkbook balance = escrow file trial balance) should be performed, and accounts that are not in balance should be researched timely to clear any unreconciled amounts. Any identified shortages must be funded as soon as possible. 6. Trust/Escrow Account Reconciliations should be reviewed by a person independent of the preparer. Risk A lack of multiple levels of review for key functions increases the opportunity for misappropriation of funds and concealment of errors in the trust or escrow account reconciliations. If the reconciliations are not reviewed by an independent person, accounting errors, mispostings, shortages and/or fraudulent activity could go unnoticed. page 4 of 10

5 Best Practice Recommendation It is recommended that a second person (independent of the preparer) review the trust or escrow account reconciliations after they are completed. 7. No file should have a negative balance. Risk A negative balance is a sign that there is an error or a true shortage in your trust account. If you have a negative balance in a file, you have used someone else s money to fund that transaction. Best Practice Recommendation Check for posting errors or outstanding deposits. If the negative balance is not caused by an error, you must immediately fund the shortage from your operating account and collect repayment to the operating account from the appropriate party. 8. Outstanding checks and/or deposits-in-transit should not be outstanding for extended periods of time. If you fail to monitor your outstanding checks and deposits listings on a regular basis, your practice or agency may be exposed to the following risks: Stale checks to lenders for mortgage payoffs, to the Clerk of the Court for recordings or to the tax collector to pay off taxes could represent future claims on The Fund. Outstanding checks to Old Republic could indicate: 1) that the respective policies have not been remitted to or received by The Fund for Old Republic or 2) that a policy was remitted to The Fund but not the premium check. Deposits-in-transit greater than five days old are considered shortages, since the funds have not been posted to the bank account. We recommend that you review the outstanding check listing monthly to ensure that all checks are clearing timely. In addition, if checks have been outstanding for more than five years, the funds should be escheated to the State as unclaimed property. We recommend that you monitor your outstanding deposits list weekly, as deposits should not be in-transit for more than five days. page 5 of 10

6 9. Ensure proper segregation of duties exists The same person should not be authorized to sign escrow checks (and/or initiate wire transfers) and perform or review the reconciliation of the escrow account. If proper segregation of duties does not exist, your practice or agency may be exposed to the following risk: Risk A lack of segregation of duties increases the opportunity for misappropriation of funds and concealment of errors in the trust or escrow account reconciliations. Best Practice Recommendation We recommend segregating certain duties to provide additional controls over disbursements by having a nonaccount signatory prepare the trust or escrow account reconciliations. For example, the person responsible for completing the escrow account reconciliation should not be a signatory on the escrow account or be authorized to approve wire transfers. 10. All excess funds must be returned to the appropriate party and cannot be used for other purposes If all excess funds are not returned to the appropriate parties, your practice or agency may be exposed to the following risk: Sec (4) F.S. requires that all escrowed funds be used only for the purpose for which they were collected. Subsection (7) provides criminal penalties for misuse of the escrow funds. Additionally, based on our interpretation of RESPA regulations, this practice may not be in full compliance. Amounts collected at closing that subsequently are not used as intended must be returned to the rightful party and may not be taken by the agency/law practice as income or used to cover a shortage for a different transaction. Based upon our interpretation of RESPA regulations, and Florida law regarding escrow accounts, we recommend that you refund any excess funds collected during each closing transaction to the appropriate party. page 6 of 10

7 11. Funds held in a trust/escrow account for 5 years must be escheated to The State. Risk Failure to escheat unclaimed property timely can result in a penalty to the holder of the funds. Best Practice: See Ch and F.S. for information on the escheatment process. Additional information can be found at Blank trust or escrow account checks should be maintained in a secure location when not in use. If the blank trust or escrow account checks are not maintained in a secure location, your practice or agency may be exposed to the following risk: Unfettered access to blank trust or escrow account checks provides an opportunity for fraudulent use of escrow funds. We recommend that you maintain the blank checks in a locked drawer or safe when not in use. This will help protect against unauthorized use of the checks. 13. Properly disclose fees charged for issuance of simultaneous policy and ensure accurate remittance to the underwriter. If more than the promulgated rate is charged for a simultaneous mortgagee policy and is not properly disclosed, your practice or agency may be exposed to the following risk: This practice may not be in compliance with the Florida Administrative Code. Based on our interpretation of the Code, any additional fees charged for the preparation of the simultaneous policy that are in excess of the minimum promulgated rate of $25 should page 7 of 10

8 be fully disclosed on the Closing Disclosure and 30% of the amount charged should be remitted to the underwriter. When charging more than the minimum promulgated rate for simultaneous policy issuances, it must be clearly disclosed on the Closing Disclosure, so that all parties are aware that they are paying more than the minimum promulgated rate set forth in the Florida Administrative Code. In addition, you should ensure that 30% of the amount charged is always remitted to the underwriter. 14. Update your title search the day of or the day before closing, and keep a copy of the update in the closing file. Failing to update the title search puts the agent and the Underwriter at increased risk of claims. Updating the title search (property and names) just before closing minimizes the gap between the last title search and the closing. The update will disclose any document recorded since the last title search that may have an effect on the property. If items are found, the Commitment should be updated to include them, and they must be dealt with at closing. Keep a copy of your updates in the closing files (even if no new documents were found) to document your update in the event of a claim. 15. All documents MUST be recorded timely. Failure to record a document as soon as possible after the closing can result in a claim caused by an intervening interest. page 8 of 10

9 We recommend that you record your documents within one or two days after the closing. A tickler system should be implemented so that documents do not get misplaced, filed away, or otherwise remain unrecorded. 16. Signature Stamps should never be used for Commitments or Policies, and we recommend they not be used for Trust/Escrow Account Checks The risk of employee errors and theft is increased when the employee s work and activities are not reviewed by the attorney. Use of a signature stamp allows an employee (and any other person who has access to the stamp) to incur liability for the attorney without the attorney s oversight or knowledge. A signature stamp must never be used on a title insurance commitment or policy. We recommend you avoid their use for trust/escrow account checks. These documents should be signed by the attorney after careful review. It is best if a stamp of the attorneys signature is never made. If your practice requires a signature stamp for a legitimate purpose, the stamp should be kept in a secure locked location with access granted only to authorized employees. The attorney must prohibit use of the signature stamp on Commitments, Policies, and Trust/ Escrow account checks. 17. Policies should be issued and remitted as soon as possible after closing. Failure to promptly issue and remit policies and premiums is likely to result in lender complaints to the agent and to The Fund. It may also cause a backlog in the workflow of your office, and the possibility of closing the file and putting it in storage in error. Best Practice: An acceptable time for remitting policies is within 30 days after closing. Instituting office procedures to issue policies timely will result in fewer complaints about late and missing page 9 of 10

10 policies and provide the ability to close files and disburse all related funds from your trust/ escrow account, resulting in a more efficient office process. 18. Become familiar with the seven pillars of ALTA s Best Practices Initiative. Implement the recommended practices and procedures in your office, and document your actual procedures in writing. Lenders are being required by the Consumer Financial Protection Bureau (CFPB) to ensure their providers of settlement services take the necessary steps to ensure the safety of borrowers funds, settlement documents, and personal information. If you cannot show that you take the necessary steps, certain lenders will not use your settlement services. Benefits: Adopting ALTA s recommended Best Practices will ensure that you are ready to show your lenders and other customers that you do everything necessary to ensure the safety of the customers money, documents, and personal information. For information on ALTA s Best Practices along with instructions and templates for documenting your procedures, please visit the Best Practices section of the Information Center at InfoCenter. page 10 of 10