To Be Certified or Not Be Certified, that is the question!
It’s been a little over two years since the American Land Title Association adopted its ALTA Best Practices Framework: Title Insurance and Settlement Company Best Practices. It’s also been about two years since title and settlement companies breathlessly began to try to adopt and comply with this best practices pronouncement. Many spent thousands of dollars to adopt and comply while many others, after hearing horror stories about the tens of thousands of dollars required to comply, simply decided that it just wasn’t worth the cost and hassle. They simply and needlessly closed their doors.
Certification! In the beginning, ALTA seemed to encourage title and settlement companies to get certified by an independent third party in its compliance with Best Practices. Further, some lenders, perhaps with some prodding by ALTA, decided that only settlement agents with a third party certification would be able to close residential loans for them. Thankfully, the number of such lenders never really amounted to much and some of those that did require a third party certification have backed off that requirement. Nonetheless, all of us look for ways to increase our revenues and CPA firms and others are no different. Before consenting to a certification or re-certification, carefully weigh the benefits of such against the costs to obtain it. I have heard of fees ranging from about $4,000 to $10,000 or more for a single certification.
ALTA’s original guidance called for a certification every two years. It’s now been about 2 years since companies were first certified and it’s now time to redo the whole process. Hundreds of settlement companies will face the pain and the cost of getting re-certified over the next 12 months or so.
To be clear, I am a strong proponent of adopting common sense internal controls and procedures, particularly in the areas of escrow accounting and protecting NPI. ALTA’s Best Practices were a good start. Adopting and periodically reviewing your compliance with Best Practices, especially with regard to employee training, is both necessary and advisable. However, incurring the cost of a third party certification may be unnecessary at best and a waste of money at worst.
In the original push for adoption of Best Practices, ALTA left open the possibility for firms to self-certify. However, at least in my opinion, ALTA left no doubt that self-certification was not really satisfactory and that a third party certification would be the standard. However, I believe that ALTA may have softened its stance in that regard.
Self-certify or 3rd party; how do you decide?
If you deal regularly with one of the very few lenders that are still requiring a 3rd party certification, you don’t really have a choice. If the revenue derived from that lender relationship justifies the cost of a 3rd party certification, go for it. However, before jumping off that bridge, check with the lender to see if their policy has changed and if a self-certification or no certification would now be sufficient. If you must go 3rd party, shop around! You don’t need to go back to the firm that did your original certification. You might find that they are the cheapest but don’t take that for granted. A recertification should be less expensive than the original, especially if you use the same firm. All of the really heavy lifting should have been done the first time around. Again, take nothing for granted and do shop around. Remember, all you need is a piece of paper saying your firm is certified compliant with ALTA Best Practices. The name on the paper will most likely be irrelevant. If you need suggestions for certification firms, contact me by clicking here.
How do I self-certify?
ALTA’s website has a section on Self Assessment including a collection of Assessment Readiness Guides to assist you in this process. You must be an ALTA member to access the Readiness Guides but they are well worth it. Fortunately, self assessment is fairly straight forward if you already have your manual prepared, your procedures are in place and you have gone through the certification process already.
Before you begin, be sure that you first be sure that you update your policy and procedures manual to include changes made by Title and Settlement Company Best Practices V 2.5 (10-07-2016). Among other more minor changes, version 2.5 adds procedures for using third party signing professionals as part of Pillar 4 (Settlement Procedures).
If you decide that you can go the self assessment route but you want some help and/or guidance through the process, let me know. I can help you with that. You can contact me here.
New to the industry or just getting around to Best Practices?
If you are new to the industry or just getting around to looking seriously at adopting Best Practices, you’ll find that the process is really not all that daunting. True, writing a best practices policy and procedures manual from scratch can be very difficult and time consuming. However, some underwriters have issued some pretty good guides if you want to do it yourself. We have a really good manual developed specifically for small and medium sized settlement agents. For more info: Best Practices Manual. The manual can be customized to fit your particular situation. Probably the most important part of more critical areas like escrow accounting and protection of NPI involves periodic employee training.
Once your manual is written, you’ll have to actually implement the procedures you’ve adopted. Chances are that you’ll find that the procedures that you thought would work won’t in your operation which means that you’ll need to find a procedure that works for you and provides the security and control that you need.
Lastly, you will need to periodically test to be sure that your procedures are actually being followed in practice.
We are here to help! If you have any questions on the matters discussed here, please let me know.