ALTA's Best Practices Pillar 2 (AC Jan 2024)

Technology has increased the speed at which anything is done regarding title and settlement services. This is especially true when it comes to transferring funds. The Virginia Wet Settlement Act was incorporated into Title 55.1 - 900, et. seq., but it only applies to loan funds in residential transactions. The Virginia Act requires lenders to provide “firm funds” prior to the transaction’s settlement. Lenders have complied by providing the funds with conditions that must be met before the funds can be dispersed. Regardless, the settlement agent has loan funds in hand at the time of settlement. Some states require all funds be fully collected prior to settlement and disbursement.

With the advent of payment rails, real time payments and Fed Now, we are not sure how these statutes need to evolve. We have been informed that ACH transfers are problematic and should not be relied upon. We have seen what has happened with Bitcoin and similar cryptocurrencies, reinforcing the reasons those are not used in real estate transactions. We have seen the issues that arise when one wires funds to a different country which funds then need to be returned, but the exchange rate has changed so the amounts are not equal. We can only imagine what may happen when the transfer of funds becomes more instantaneous.

ALTA’s Best Practices Pillar 2 gives strong guidance to help agents protect funds in their possession. This Pillar was updated in 2023 and will probably be updated soon due to additional changes in the marketplace. Things you as a settlement agent can do:

1. Use a form of Positive Pay, such as Payee Positive Pay, Reverse Positive Pay and Regular Positive Pay. Contact your escrow bank to find out which service they offer.
2. Make sure you understand how deposits can be reversed and determine what you can do to prevent reversals. Some agents have dual accounts so that once a wire is received it is automatically sent to a separate account so it cannot be recalled by the original depositor.
3. Use Multifactor Authentication. Nothing more should need to be said about this. It borders on negligence in this day and age for this not to be a standard practice for all agents.
4. Use a wire verification service such as ClosingLock, CertifID, or Payoff Assist, to name a few.
5. Do background checks on all employees, not just those handling funds.
6. Use a DAILY reconciliation service. Do not wait until your 3-way reconciliation at the end of the month. More importantly, REVIEW the results and SOLVE any discrepancies. Do not just ignore it. This is one area in which attorneys have a weakness, as they have no external pressure to do a monthly reconciliation, and many real estate attorneys fail to meet the same stringent guidelines of non-attorney settlement agents.
7. Have a program that addresses wire fraud and make sure all customers, employees, real estate agents, and others with whom you do business are aware of the issues and protections.

Take time to re-read ALTA’s Best Practices. Update your notebook. Make sure the Practices are followed. Use it as a functional manual, not just for show. It is some of the best protection you can have.