If you are in the business of real estate or title insurance, then you are more than likely aware of the American Land Title Association’s (ALTA) best practices framework. You have probably rolled your eyes at the concept of yet another set of rules and stringent guidelines you must follow in order to remain compliant in your industry. However, ALTA Compliance is more than that – it is a competitive edge you can gain by setting yourself apart from the competition.
Here is the idea – in an effort to set expectations for business relationships between lenders and service providers, the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2012-13. In response, ALTA came up with a set of Best Practices (also known as pillars) that real estate attorneys, settlement agents, and title companies are expected to follow in order to ensure that proper controls are in place in an effort to protect consumers. The crack-down is really targeting mortgage lenders and their use of third-party personnel. The CFPB has the ability to audit these relationships and if the CFPB determines the third party providers are not acting in accordance with the consumer financial laws or in a manner in which consumer information is at risk, the CFPB can impose significant fines and penalties on the mortgage lender. While the penalties levied will not be the responsibility of the third party provider, the lender will without doubt, sever relations with the third party provider, causing great financial harm and a serious hit to their reputation.
As mortgage lenders deal with the potential of serious monetary damages from this legislation, they are starting to seek out providers who are ALTA-compliant. Doing this will allow the mortgage lenders to greatly reduce the risk of fines and penalties from dealing with providers who may not have the proper controls in place to meet the requirements of CFPB Bulletin 2012-13. While there are no CFPB penalties for the third party providers if they are not ALTA-compliant, the risks of not becoming compliant are certainly significant. Becoming ALTA-compliant translates into mortgage lenders wanting to do business with you, rather than risking it with a provider who is not compliant. This means setting your firm apart from the competition and being proactive and gaining a competitive edge over those who wait.
Becoming ALTA-Compliant involves adherence to ALTA Best Practices, of which there are seven key areas (pillars). The Best Practice pillars are as follows 1) appropriate licensing is in place, 2) proper escrow trust accounting procedures, 3) privacy and security of customer non-public information, 4) proper settlement processes are in place and documented, 5) proper policies and procedures are in place and documented for policy production, delivery, reporting, and premium remit, 6) professional liability insurance is properly in place, and 7) consumer complaints are maintained and documented. As you may notice, most of the time constraints surrounding ALTA compliance are the documentation of policies specific to your company and ensuring that policies and procedures are followed by your employees.
While documentation and implementation of the 7 pillars is certainly important, lenders will be looking for third party verification of your compliance. We at Reynolds & Rowella, LLP have the knowledge and experience to step in and provide a third-party, certified public accountant level examination of your ALTA-compliance. CPAs are the only ones allowed to issue an examination report on your adherence with these Best Practices. Our end product is a certification that states that you are ALTA-compliant for a period in time (the test period is generally 2-3 months or as defined by your lender and certification lasts usually two years) which you can provide to your mortgage lenders as proof of your compliance with the ALTA Best Practices and CFPB Bulletin 2012-13. We can assist you with performing a compliance benchmark analysis and remediation of deficiencies before formal compliance testing begins.
Set yourself apart from the competition and get onboard with ALTA compliance and watch your business grow.
Steven Gagnon, CPA, is director, assurance services and Stephanie Sheldon, CPA, is an audit associate, both head the Best Practices division at Reynolds & Rowella, LLP, new Canaan, CT.