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ALTA Best Practice #4 – Settlement Policies and Procedures

Best Practice 4 – Settlement Policies and Procedures: Adopt standard real estate settlement policies and procedures. This can ensure a settlement company can provide a safe and compliant settlement and meet state, federal and contractual obligations governing the settlement process and provide for ongoing employee training.

Purpose: Adopting appropriate policies and conducting ongoing employee training can ensure that a real estate settlement company can meet state, federal and contractual obligations governing the settlement process and provide a safe and compliant settlement.

WRITTEN POLICY FOR SETTLEMENT POLICIES & PROCEDURES

  1. We acknowledge that Lenders expect full disclosure of all receipts and disbursements in accordance with written mutual instructions.
  2. All sets of Closing Instructions are collected and reviewed prior to closing.
  3. If any one set of Closing Instructions is adverse to another set of closing instructions – we obtain in writing from all parties consent to the changes made to correct the adverse matters prior to closing.
  4. The closing is performed in accordance to all instructions from:
    a) Lender Closing Instructions
    b) Title Commitment
    c) Purchase Agreement
    d) Any other misc. agreements (Escrow Agreements, etc.)
  5. We follow all HUD Regulations in preparation of the HUD Settlement Statements and are sure that ALL disbursement checks MATCH EXACTLY what is shown on the HUD Settlement Statement.
  6. The agent’s closing and settlement policies adhere to the Texas Department of Insurance Basic Manual of Title Insurance which contains rate procedural and administrator rules that govern title companies in Texas.

    Specific Detailed Guidelines: Disbursement Of Proceeds

    Buyer/Borrower Proceeds:

    • Any amount shown on line 303 of the HUD-1 Settlement Statement (funds due from Buyer/Borrower) must come into your escrow/trust account from the borrower or be disbursed to your borrower as shown in Section D.
    • Any funds received by any other party must reflect on a separate line in the 200 series designating the source of funds.

    In regions where the buyer/borrower funds are credited prior to the printing of the final HUD-1 statement, those funds should be reflected in the 200 series of the HUD-1 statement showing the source of funds and line 303 should reflect zero proceeds or a refund, if any due to the buyer/borrower.

    Seller Proceeds:

    Seller proceeds are not assigned to other parties or otherwise disbursed and are disbursed only to the Seller, as defined in the Loan Closing instructions and HUD-1. Where the Seller requests the proceeds to be paid otherwise, pre-closing clearance is obtained by us.
    Multiple disbursements to the same payee are not acceptable especially when asked to disburse in increments of $10,000 or less as this may be perceived as participation in a money laundering scheme.
    Borrower proceeds from a refinance, if any, are only to be paid in strict compliance with the written closing instructions provided by the funding lender. Pre-closing consent is obtained from the lender on any request to pay additional parties. If such consent is obtained, the changes are listed in the 1300 section of the HUD-1. We do not rely on approval of the mortgage broker.

    Mortgage Payoffs:

    • Must be in writing and should reference loan number and property address in addition to borrower’s name
    • We watch home equity lines of credit and obtain a signed ’closing letter’ from the borrower to the lender requesting that the credit line be closed.
    • Include sufficient detail on the payoff check to identify the property and borrower.
    • If property is in foreclosure, we make certain we have accounted for any attorney’s fees and other court costs.
    • Sellers are never to deliver their own payoff check. Payoff checks must be delivered in a manner in which the date and time of receipt of the check can be documented.

    Escrowed Funds Disbursement:

    Purpose:

    1. Approvers’ and/or check signers’ responsibilities on external disbursements are to ensure the payment amounts are supported, proper vendors are paid, and disbursements have been properly authorized by the escrow officer.
    2. Approvers’ and/or check signers’ responsibilities over our fee income are to ensure that check/journals to recognize our fees are only processed after the order has closed.

    Procedure:

    All escrow disbursements (check and/or wire) require two approvers, one of which must be a licensed escrow officer. Evidence of the two approvals is required on the check/wire request and the check disbursement register for every escrow.

    Cancelled Checks and Stop Payments:

    Purpose:

    Check fraud and wire fraud are expensive issues. The ’holder in due course’ doctrine gives legal protections to innocent third-party recipients of checks and wires that are presented to them and not patently counterfeit.

    A Cashier or Teller Check in the hands of a holder without knowledge of a defense must be honored by the financial institution on which it is drawn because it is the obligation of the financial institution.

    Under Company, policy failure to observe the procedure detailed below may result in the Agent being personally liable if the Company suffers a loss on the transaction when a lost, stolen or destroyed item is subsequently presented and paid.

    Procedure:

    Cashier's or Teller Checks

    Payment on a Cashier’s or Teller check issued by the Company may not be stopped without:

    • Obtaining approval from the appropriate supervisor before directing that a replacement item is issued.
    • Obtaining an affidavit concerning the lost, stolen or destroyed item from the person whose obligation is paid by the cashier’s or teller’s check.
    • Satisfying any requirement by the bank upon which the check is drawn to obtain a bond or other form of security for the amount of the check, if the bank is going to reissue the check before a 90 day period has elapsed.

    Trust Account Checks

    A check that has been issued and processed in the accounting records, but subsequently lost, stolen or returned to the Company should be ’voided’.

    If the original check has been returned, mark it ’Void’, remove the signature portion of the check and forward it to accounting for adjustment to the appropriate records. Voided checks, if found, must be retained.

    Unless a check has been lost or stolen, do not stop payment without consulting your supervisor.

    If the check has been lost or stolen, first determine if the check has cleared the bank.

    • The accounting department should contact the bank to verify that the check has not cleared the bank.

    If it has not cleared, the bank should be advised both orally and in writing to place a stop payment on the check.

    No check may be reissued until it has been determined that it has not cleared the bank and you have received authorization from the accounting department.

    If the original check is subsequently found, it should be forwarded to the accounting department with a note across the face of the original check stating that a stop payment was issued on this check and indicating the date of the stop payment.

    Disbursement or Receipt of Funds By Wire:

    Purpose:

    Generally, wire transfers are not subject to a stop payment, recall, cancellation or adjustment. Once a wire request has been executed the funds immediately become the property of the transfer recipient. Because of these concerns and to minimize the risk of loss from errors or fraud, wire transfer authority is to be centralized within a limited number of management, escrow, accounting or administration employees.

    Procedure:

    • No escrow department employee shall be unilaterally authorized to issue or approve a wire transfer.
    • Escrow officers initiate the wire transfer in the secure online system. Then a second authorized employee reviews he wire request and approves the wire.
    • All wire transfers must have a separate authorized employee initiate the wire and a second authorized employee approve it. One must be a licensed escrow officer.
    • In all cases of initiation of a wire transfer by an escrow officer or other authorized party, a reasonable security procedure must be used to validate the transfer.

    Mortgage Fraud Awareness and Prevention:

    Purpose:

    It is in our own self-interest to be vigilant for signs of potential mortgage fraud. The costs of becoming drawn into a mortgage fraud investigation are substantial, and you personally may be drawn into an investigation. Regulators and underwriters, as well as the general public, consider us to be a significant part of the process and system for minimizing mortgage fraud.

    Our agency will not tolerate ANY deviation from standard closing procedures that would result in Mortgage fraud.

    Procedure:

    • Adhere to all Underwriting Bulletins concerning settlement issues.
    • Mortgage fraud has many moving pieces, but can include any of the following:
      • A person that knowingly, with the intent to defraud, does any of the following is guilty of the crime of residential mortgage fraud, punishable as provided in this section:
      • A person that makes a false statement or misrepresentation concerning a material fact or deliberately conceals or fails to disclose a material fact during the mortgage lending process.
      • A person that, during the mortgage lending process, makes or uses a false pretense, or uses or facilitates the use of another person's false pretense, concerning the person's intent to perform a future event or to have a future event performed.
      • A person that uses or facilitates the use of a false statement or misrepresentation made by another person concerning a material fact or deliberately uses or facilitates the use of another person's concealment or failure to disclose a material fact during the mortgage lending process.
      • A person that receives or attempts to receive any proceeds or any other money in connection with the mortgage lending process that the person knows resulted from a violation.
      • A person that files or causes to be filed with the register of deeds of any county of this state any document involved in the mortgage lending process that the person knows to contain a deliberate material misstatement, misrepresentation, or omission.
      • A person that fails to disburse funds in accordance with the settlement or closing statement for the mortgage loan.
      • A person that solicits, encourages, or coerces another person to participate in any of the above activities.

    “Settlement Policies & Procedures – Recording procedure download PDF here

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