What You Need to Know for ALTA Best Practices, 4.0

"The only way to make sense out of change is to plunge into it, move with it, and join the dance." - Alan Watts, old, dead British-American philosopher (1915-1973)

Earlier this year, the American Land Title Association (ALTA) published the ALTA Best Practices Framework, version 4.0.

Who’s excited?! 

…Anyone? Bueller? 

For those new to the title and settlement industry or just need a refresher, ALTA’s Best Practices are the guidelines developed by our industry’s national trade association. These guidelines are meant to protect consumers and lenders and help title companies and agents operate in a compliant, secure, efficient and safe manner.

First introduced in 2013, ALTA’s Best Practices came about in the wake of foreclosures and economic turmoil from the 2008 crash, which exposed vulnerabilities in the industry and led to increased scrutiny from regulators. Version 4.0 represents the first major rewrite in 10 years.

Why now? Well, the world has changed just a bit since 2013. (Remember the Harlem Shake? No? Good, let’s all move on). When these guidelines were first updated, wire fraud wasn’t as much on the radar, nor were title production software integrations really a thing. This 2023 update addresses changes brought on by Remote Online Notarizations (RON) and e-closings, the rise of remote work, shifting laws and regulations, the onset of new technology and rising threats in the areas of cyber fraud and theft.

What’s Changing?

Here’s a high-level overview of the pillars that have received the most attention.

Pillar 2: Escrow Trust Accounting

Updates include acknowledging that any loss of funds may fall outside of your E&O coverage and emphasizing the importance of avoiding undue risk when handling non-settled funds. Additionally, guidelines now exist for handling Escrow Account Disbursements, regulations for using "Fintech" applications and requirements for multi-factor authentication and wire verification services for Wire Transfer Procedures.

Other updates include extending background check refreshes to all employees and requiring the review and manager approval of aging Escrow file balances. Finally, the daily reconciliation process must now identify and investigate discrepancies using either electronic or manual methods. These updates enhance the security and accuracy of financial transactions and ensure the protection of customer funds.

Pillar 3: Protecting NPI (Non-Public Personal Information)

These updates are meant to strengthen the protection of NPI and related company systems by requiring specific security measures, including multi-factor authentication, password management and software updates. They also extend network security requirements to the use of cloud systems, virtual equipment, data centers and third-party hosting.

Additionally, the guidelines state that background checks should be required for anyone with access to NPI or information systems, including service providers. All written response plans must directly address any cybersecurity incident and include periodic testing, and service provider policies must be consistent with the company's Written Information Security Plan (WISP). The updates also require software tools and resources to be compatible with the company's WISP. This includes third-party software and systems, automated processes, APIs and software add-ons.

Pillar 4: Settlement Processes

The new updates require disclosing affiliated business arrangements, written procedures related to closing documents, and monitoring signing professionals' licensing and insurance. Background checks are now required for signing professionals employed by the company, and third-party signing professionals must have the necessary professional designation, insurance and bond as required by state law and/or the title insurer. The use of remote notarization platforms and e-recording vendors are also addressed, along with guidance for paying fees or taxes for Escrow Trust Accounts.

Now What?

These revisions are effective May 23. While companies are free to begin implementing these changes whenever ready, any assessments (whether first-time or renewals) performed after the effective date must use the new framework.

While compliance isn’t mandatory, these Best Practices serve as a benchmark for the title and settlement industry, ensuring companies meet industry standards and regulations. Compliance with them helps agencies protect consumers from fraud, errors and other harm, meet regulatory requirements and build trust with key stakeholders. (So when you are certified, people should know about your commitment.) It also reduces risk and helps companies stay competitive, as many lenders and underwriters require it to do business.

The only problem? Even when they’re not being overhauled, implementing all the procedures to comply with Best Practices can be too demanding and cumbersome for smaller to mid-size title and settlement agencies. Achieving certification can be time-consuming and confusing because it involves an in-depth review of all or your internal policies, procedures and practices. It may also require more staff training, upgrades to existing software and other expensive investments.

Never fear! Generes is here! 

When ALTA first introduced new guidelines, we launched our Best Practices Consulting Services to save the day. We have since helped many companies navigate the road to compliance with our expert guidance and support. Our President, Ed Generes, has nearly five decades of experience in the industry and serves on the ALTA Best Practices Task Force.

Our consulting service includes an easily adaptable manual designed to help smaller to medium-sized companies achieve compliance. We can help you design procedures that will achieve the same end result of ALTA’s Best Practices in a more cost-effective and less resource-demanding manner.  We can also simplify and speed up the certification process by helping you interpret examiner questions and craft ideal answers.

With our expertise, there’s no need to feel overwhelmed by these changes. Let us be your dance partner as we navigate these updates together.