Within the turbulent sea of regulatory changes affecting the title industry in recent years, the American Land Title Association (ALTA) announced in June 2016 proposed language and procedural changes to the current ALTA Best Practices Framework (v2.0) (Best Practices) and Assessment Procedures (v2.1) (Assessment Procedures). This new information may have left some title companies feeling unsteady in their compliance with Best Practices. Those wishing to meet these updated compliance standards, must regain their balance and ride out these new waves of change. An awareness of these changes prior to their finalization in early October 2016 can help your company navigate these uncertain waters and safely make it to shore.
Understanding ALTA’s Process for Adopting Changes
Prior to adopting changes to the Best Practices and Assessment Procedures, ALTA first received Board of Governance approval, announced the proposed changes, and then held a comment period (through July 29, 2016) to solicit input from members. As of this announcement and according to ALTA’s website, comments and feedback are now under consideration. Once feedback is reviewed, ALTA plans to implement the changes prior to the expected effective date of October 7, 2016. We believe that most of the changes to Best Practices and the Assessment Procedures clarify language in the earlier versions and that ALTA’s finalized updates will include many of the proposed modifications after the comment period. Therefore, industry professionals should start developing a plan that addresses any potential impact to their businesses.
Basis for the Changes
The proposed changes were based, in part, on the insights and feedback from title and settlement companies who went through the process of implementing Best Practices and obtaining independent third-party certification for their organizations. During that process, some unclear or confusing Best Practices verbiage, as well as other areas that needed improvement, began to emerge. In this article, we will examine some of the proposed updates involving simple word modifications that clarify the understanding of Best Practices intent, and we also will address a few of the more substantial changes that could affect your current business operations.
For Pillar 2, ALTA updated the language regarding Automated Clearing House (ACH) debit blocks and international wires to state that companies should utilize Positive Pay or Reverse Positive Pay, if available in the local market, and prohibit or control the use of ACH and international wire transfers. This change allows the use of ACH and international wire transfers, if necessary for the performance of business (hence, greater flexibility for the agent), but emphasizes that they must be controlled (hence, greater protection for the customer). ALTA also proposed new verbiage to clarify that “reconciliations, bank statements and supporting documentation can be provided electronically to the Company’s contracted underwriters upon request.” This wording clarifies the previous language that says documents must be accessible electronically, which was always a point of confusion for agents. For the review timeline, ALTA changed “days” to “business days” for banking items such as deposits in transit, outstanding checks, file shortages, and the selection of daily reconciliations for testing.
One of the changes within Pillar 3 answers the question about how to treat documentation that contains non-public personal information (NPI). The updated language now clarifies that title companies must establish a time frame for the retaining and disposing of records containing NPI. In even more detail, the new language proposes that “Assessment Procedures should be applied as 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.” Another significant change to Pillar 3 is the proposed addition that companies will need to routinely test their established disaster management plan and document the results. Also, another change allows for the use of encryption or an alternative secure delivery method for transmitting NPI. And, going forward, rather than simply restricting the use of removable media, ALTA would allow the controlled use of such devices (USB ports, CD/DVD writable drives, etc.).
In Pillar 4, due diligence of third-party companies, specifically third-party signing professionals, receives more attention. Previously, vendor due diligence was solely covered in Pillar 3. Now, third-party signing professionals are mentioned in Pillar 4 along with language that highlights a combination of legal and contractual obligations. Notary due diligence includes, but is not limited to, proof(s) of insurance, applicable industry verifications, and state licensures. There is an exception to this rule: if the third-party signing professionals are directly employed by a Best-Practices-compliant title or settlement agent or an underwriter. In this case, the third-party signing professional already has been assessed by the certified title company or underwriter, and therefore due diligence previously has been established.
The biggest wave of change to Pillar 5 is that it now stipulates a 45-day remittance period to the underwriter instead of a range of 30 to 60 days, depending on when the settlement occurred during the month. This means title or settlement agents will have a firm time frame for reporting titles and sending in payments. Title companies should be aware that this potentially could affect contractual obligations and invoicing processes between agents and underwriters.
Finding Your Balance
ALTA’s proposed changes demonstrate a continued focus on Best Practices as a compliance solution for title and settlement companies. The Best Practices updates convey ALTA’s commitment to compliance and the security of consumer information. Remaining up-to-date on Best Practices and the proposed changes is key to providing lenders with assurance that you are in compliance with them. Furthermore, title and settlement agents should review ALTA’s proposed changes in depth to identify the potential impact on business practices. The challenging part, just like learning to surf, is finding your balance. Once you are up, you can ride out the wave. More information on the changes to the Best Practices Framework and Assessment Procedures can be found on ALTA’s website at www.alta.org.