Audit Hot Buttons
Texas Land Title Institute
December 5‐6, 2013
Robert York Brenda Nelson
Manager, Title Examinations Agency Representative
Texas Department of Insurance Old Republic National Title Ins Co.
P.O. Box 149104 777 Post Oak Blvd., Suite 240
Austin, Texas 78714 Houston, Texas 77056
512‐322‐5027 888‐678‐1700
Brenda Nelson Brenda joined Old Republic National Title Insurance Company in February 2010 as a Texas State Agency Representative. She assists independent agents with their escrow functions and operational and administrative processes. Brenda was born and raised in Southern California. After graduating from Columbia College in Missouri, she started a company in California managing accounts receivables for area hospitals. She sold the company when her family relocated to Texas in 1993. Once in Texas she began her title insurance career as an abstractor. She was promoted to an Escrow Assistant and quickly ascended up to Vice President of Operations over the course of her career. She enjoys the interaction with her clients and respects the relationships she has gained with her client and title family.
Robert A. York earned a bachelors degree in 1986 from Texas A&M University, where he majored in accounting. Robert has worked for the State of Texas since 1986 as an auditor, audit reviewer, or audit manager. Robert started working in Title Examinations as the Audit Coordinator in 1997, became the Assistant Manager in 2001, and has been the Manager of Title Examinations since 2002. Robert has lived in 10 cities in 4 different states, but was born in Texas and has stayed in Texas for the last 34 years.
I. Statistics
A. TexasDepartmentofInsurance’s(TDI)goalistoauditeveryagentonceeverytwoyears.
B. BasedonthenumberofagentsinTexastheTexasDepartmentofInsurancemustcomplete287comprehensiveauditsayearor72auditsperquartertomeettheirgoal.
C. InthelastTexasTitleInsuranceGuarantyAssociation(TTIGA)report(attachedasExhibitA)indicatesTDIwillmeetthisgoalfor2013.
D. EachagentshouldexpecttohaveaTDIauditorintheirofficeeverytwoyears.
II. CurrentQuarterStatistics
A. TexasDepartmentofInsuranceauditorscompleted93complianceauditsthisquarter.
B. ThiswasthesecondhighestnumberofauditsTDIhasevercompletedduringaquarter.
C. DuetothishighvolumeofauditstheTTIGAreportmayshowhighernumberofviolationsthanaverage,eventhoughthepercentageofagentscited(comparedtothetotalnumberofagentsaudited)mightbelowerthanaverage.
III. UpdatefromTexasDepartmentofInsurance
A. TeamMate–TheTDIfieldauditorsrecentlyreceivednewhardwareandsoftwarethattheywillbeusingforthecomplianceaudits.ThenewTeamMatesoftwaretheyareusingmightresultinmanyauditorsrequestingthattitleagentsprovidetheagencyrecordselectronically,ifpossible.Allauditworkpaperswillbestoredelectronicallynow,insteadofhardcopies.
B. SuspensionofthePolicyGuarantyFee–thetitleagentswillstopcollectingpolicyguarantyfeeson1/1/2014butwillstartcollectingGuarantyAssessmentRecoupmentFeesonthatsameday.TheGARCfeeswillberemittedtotheGuarantyAssociationquarterlypursuanttoProceduralRuleP‐30.Therulerequiresthefeestobemaintainedinanauditedescrowortrustaccount
C. Newquarterlyreportingrequirements–ThefilingoftheQuarterlyTaxReportsstartswiththefirstquarterof2014.Alltitleagentsanddirectopswillneedtosubmitacopyoftheirquarterlypayrolltaxreport(941)toTDIattheendofeachquarter,alongwithevidencethatthetaxeswerepaidpursuanttoAdministrativeRuleS‐5.
D. TheTitleLicensingOfficeoftheTexasDepartmentofInsurancewillbeginusingnewlicensingsoftware.
E. Continuingeducationwillchangeforbothescrowofficersandmanagement.Escrowofficerswillberequiredtohaveonehourofethics.Newon‐sitemanagersthatdonotmeettherequiredexperiencewillberequiredtotakecontinuingeducationhours.
IV. InsuranceCodeViolationswhereOrderwassignedbyCommissionerRathgeber
A. Section2501.006–violationresultedinfineof$1,000toagent
Sec.2501.006.CLOSINGTHETRANSACTION.(a)Forpurposesofthistitle,"closingthe
transaction"describestheinvestigationthatismade:
(1)onbehalfofatitleinsurancecompany,titleinsuranceagent,ordirectoperation
beforethetitleinsurancepolicyisissued;and
(2)todetermineproperexecution,acknowledgment,anddeliveryofallconveyances,
mortgagepapers,andothertitleinstrumentsnecessarytoconsummateatransaction.
(b)Closingthetransactionincludesadeterminationthat:
(1)alldelinquenttaxeshavebeenpaid;
(2)inthecaseofanownertitleinsurancepolicy,allcurrenttaxes,basedonthelatest
availableinformation,havebeenproperlyproratedbetweenthepurchaserandseller;
(3)theconsiderationhasbeenpassed;
(4)allproceedshavebeenproperlydisbursed;
(5)afinalsearchofthetitlehasbeenmade;and
(6)allnecessarypapershavebeenfiledforrecord.
B. Section2703.052–violationresultedinfineof$5,000penaltyplusrestitutionof$36,979.50.
Sec.2703.052.DUTYOFTITLEINSURANCECOMPANY.(a)Onareporttoatitle
insurancecompanymadebyaninsuredafteratitleinsurancepolicyhasbeenissued
thatalien,encumbrance,ortitledefectexiststhatisnotexceptedunderthepolicyor
otherwiseexcludedfromcoverage,thecompanyshallpromptlyinvestigateto
determinewhetherthelienorencumbranceisvalidandnotbarredbystatuteorother
law.
(b)Atitleinsurancecompanythatconcludesthatavalidlienorencumbrancethatis
notbarredbystatuteorotherlawexistsorthatatitledefectexistsshall:
(1)instituteallnecessarylegalproceedingstoclearthetitletotheproperty;
(2)indemnifytheinsuredaccordingtothetermsofthepolicy;
(3)reinsureatcurrentvaluethetitletothepropertywithoutmakingexceptiontothe
lien,encumbrance,ordefectorindemnifyanotherinsurerforreinsuringthetitle
withoutmakingexceptiontothelien,encumbrance,ordefect;
(4)secureareleaseofthelien,encumbrance,ordefect;or
(5)takeacombinationoftheactionsdescribedbythissubsection.
C. Section2502.051–violationresultedinfinetotwoagents,onefor$55,000(alsoincludesadditionalmoniesforviolationbelow)andtheotherfor$40,000.
Sec.2502.051.REBATESANDDISCOUNTSPROHIBITED.Acommission,rebate,
discount,portionofatitleinsurancepremium,orotherthingofvaluemaynotbe
directlyorindirectlypaid,allowed,orpermittedbyapersonengagedinthebusinessof
titleinsuranceorreceivedoracceptedbyapersonforengaginginthebusinessoftitle
insuranceorforsolicitingorreferringtitleinsurancebusiness.
D. Section2652.201–violationresultedinfineof$55,000(seeabove)
Sec.2652.201.GROUNDSFORLICENSEDENIALORDISCIPLINARYACTION.(a)The
departmentmaydenyanapplicationforalicenseordisciplineanescrowofficerunder
Sections4005.102,4005.103,and4005.104ifthedepartmentdeterminesthatthe
applicantorlicenseholderhas:
(1)willfullyviolatedthistitle;
(2)intentionallymadeamaterialmisstatementinthelicenseapplication;
(3)obtainedorattemptedtoobtainthelicensebyfraudormisrepresentation;
(4)misappropriatedorconvertedtotheescrowofficer'sownuseorillegallywithheld
moneybelongingtoatitleinsuranceagent,directoperation,oranotherperson;
(5)beenguiltyoffraudulentordishonestpractices;
(6)materiallymisrepresentedthetermsandconditionsofatitleinsurancepolicyor
contract;or
(7)failedtocompletealleducationalrequirements.(b)Thedepartmentmaynotdeny
anapplicationforalicenseordisciplineanescrowofficerunderSection4005.102,
4005.103,or4005.104solelybecausetheindividualresidesinanadjacentstateand
actsasanescrowofficerinthisstateasabonafideemployeeofatitleinsuranceagent
ordirectoperationinthisstate.
E. Preparedcommitmentswithfalseinformation–EscrowOfficerlicensedrevoked.
F. Preparedcommitmentswithfalseinformation–EscrowOfficerlicensedrevoked.
V. CompletelyAvoidableFines
A. Failuretotimelyremitguarantyfees–violationofAdministrativeRuleG‐1
B. Failuretotimelyremitannualescrowauditreport–violationofSection2552.251
C. FailuretotimelyremitStatisticalReport–violationofSection2703.153
VI. FinancialConcerns
A. ActivecasesinFinancial,EnforcementandFraud
1. Sixteencaseswerereferredthisquarter
a) Threefortroubledtitleagents
b) TwoforMiscellaneousviolationsofTexasIns.Code
c) Twoforrebating
d) Threeforlicenserevocation
e) Fiveforlatereportsorfeeremittances
f) OneformisappropriationofFiduciaryFunds
2. Insolvency
Fouragent’sfinancialstatementsindicatedagentwasinsolventorhadcashflowproblems
3. MinimumCapitalizationRequirements
a) AdministrativeRuleS1authorizestheestablishmentofsolvencyaccountstoachievecompliancewiththeminimumcapitalizationrequirement
b) AdministrativeRuleS2requirementforestablishingandmaintainingsolvencyaccount.
c) AdministrativeRuleS3describestheproceduretorequestreleaseofassetsincludingsolvencyaccountfunds.
d) AdministrativeRuleS7indicatesaTitleAgentcanuseasuretybondtomeettheminimumcapitalizationrequirements.
VII. OtherViolations
A. AbstractPlants
1. NotincompliancewithSection2501.004andP‐12
2. WhatislookedatinregardstoAbstractPlants?
3. Iftheplantanagentsubscribestoisnotincomplianceistheonlysolutiontochangetheirsubscription?
B. AffiliatedBusinessArrangements
AnyAffiliatedBusinessArrangementmustbedisclosedtotheconsumerasrequiredbyRESPA§3500.15
VIII. AdministrativeRules
A. LicensingViolations
1. Conductingtheunauthorizedbusinessofinsurance
2. Providingpoliciestonon‐licensedentity
3. Soldtitleevidenceforcountieswhichagentwasnotlicensed
4. UseofanunlicensednameorDBAname
5. Unlicensedpersonactingasanescrowofficer
6. Issuedpoliciesforpropertyincountywherenotlicensed.
IX. Solutions
A. Trainingofemployeestoavoidinfractions
1. ReceiptsandDisbursementsdon’tmatchHUDasrequiredby2702.053
2. NoinvoicetomatchdisbursementasrequiredbyMEAPIC#16
3. ScheduleDnotinfileorincomplete
4. AllrecipientsofanyportionofRealEstateCommissionnotdisclosedonsettlementstatementasrequiredinTDIBulletin160
5. Bringtodateoncommitmentisnotwithin30daysofclosingdate(mostunderwritingagreementsrequirecommitmentstobewithin30days.Checkyouragencyagreement)
6. Timelyrecordingofrequireddocuments
7. Assuringfundsare“goodfunds”
8. Incorrectpremiumcharged
9. Refinancecreditnotgivenorcalculatedincorrectly
10. Verbalorwrittenguaranty,affirmation,indemnificationorcertificationissued.(P‐35–morethanlikelysigningclosinginstructions)
B. MaintainCompleteGuarantyFiles
1. Eachversionofthecommitmentmuchbeinthefile
2. CompletedT‐00
3. Evidenceoftimelyrecordingofdocuments
4. Invoicesforalldisbursements
5. FinalversionoftheReceiptsandDisbursementsledger
C. MinimumEscrowAccountingProceduresandInternalControls
1. Managementapprovalof3‐wayreconciliations
2. Managementapprovalfordisbursementsmadeonaccountsopenedformorethan6monthsandreviewofdispositionoffunds
3. Managementapprovalfortransferoffundsbetweenguarantyfiles
4. Escrowreceivablesneedtobeclearedtimely.NegativebalancesontheEscrowTrialBalancemustbeinvestigated.
D. PostClosingAuditIssues
1. RecordingRefunds
2. EscrowTrialBalance
3. StaleDatedChecks
4. EscheatingtotheState
X. ElectronicSignatures
A. Industryismovingtowardsdocumentsbeingsignedelectronically.
B. WhataretheconcernsTDIhasinregardstoelectronicsignatures
C. TexasDepartmentofInsuranceallowspromulgateddocumentstobesignedelectronicallyifutilizingasafeguardedelectronicsignature.
1. TitleCommitmentofTitleInsurance
2. TitlePolicy
D. TDIhasalwaysstatedthatelectronicsigningoftheHUD‐1settlementstatementisnotallowed.
XI. PaperlessAgents
A. ProceduralRule17isveryclearastotherequirementsformaintainingfileselectronicallyaswellastimeframeforretention.
P‐17.ElectronicallyProducedForms
1. PermissiontoElectronicallyProduce
ItshallbepermissibleforaCompanytocomputergenerateorelectronicallyproduceanyTexaspromulgatedform.IfaCompanyelectstouseelectronicallyproducedforms,theCompanyshallusetheappropriatepromulgatedlanguagefortherelevantformassetforthintheBASICMANUALOFRULES,RATESANDFORMSFORTHEWRITINGOFTITLEINSURANCEINTHESTATEOFTEXAS.An"electronicallyproducedform"shallbesignedeitherwithanoriginalsignatureorbyasafeguardedelectronicsignatureasprovidedinsubsection(e)ofthisruleandissuedbytheTitleInsuranceAgentorDirectOperationorTitleInsuranceCompanypreparingtheformandshallstatethenameoftheTitleInsuranceCompanyhavingliabilityunderthetitleinsuranceform.
2. PermissibleChangestoPromulgatedForms1. Itshallnotbenecessaryforanelectronicallyproducedformissuedbya
Companytocontain:1. thefacsimilecorporateexecutionoftheTitleInsuranceCompany;or,2. thefacsimilecorporateattestoftheTitleInsuranceCompany;or,3. thefacsimilecorporatesealoftheTitleInsuranceCompany.
2. WiththepermissionofitsTitleInsuranceCompany,itshallbepermissibleforacompanytomakethefollowingnon‐substantivechangestoanelectronicallyproducedform:
1. omitthepromulgatedblankforinsertinganendorsementnumber;2. omittheuseofendorsementnumbersiftheTitleInsuranceCompany
electsnottoindividuallyinventoryendorsements;3. addaccountinginformation(suchas,withoutlimitation,countycodes,
statisticalcodenumbers,raterulereferences,andpremiumamounts)tothetoporbottommarginofanelectronicallyproducedform;and,
4. formatgeneralidentifyinginformationtobeprintedinconvenientlocations.Forpurposesofthissub‐paragraph,generalidentifyinginformationincludessuchitemsas(i)nameofTitleInsuranceCompany;(ii)nameortitleofform;(iii)form"T‐__"number,ifapplicable;and,(iv)signatureblanksfortheCompany.
3. DirectlyIssuedPolicies
ThisruleshallnotaffecttherequirementforcountersignatureofaDirectlyIssuedPolicypursuanttoProceduralRuleP‐31,whichpolicymaybecomputergeneratedorelectronicallyproduced.
4. ConsumerProtection
TheCompanymustcomplywiththeprovisionsoftheElectronicSignaturesinGlobalandNationalCommerceAct,includingtherequirementsforConsumerDisclosuressetforthinSection101(c)ofsaidact,andtheUniformElectronicTransactionsAct,TexasBusinessandCommerceCode,Chapter43,whereapplicable.
5. ElectronicSafeguards
Informationthatisgenerated,scanned,orotherwisestoredelectronicallymustaccuratelyreflecttheinformationsetforthinthedocumentorrecordasofthetimeit
wasfirstgeneratedinitsfinalformandmustremainunalteredandaccessibleforlaterreferenceandaudit.
6. DocumentRetention
ThisruleshallnotaffecttherequirementsofdocumentretentionpursuanttoArticle9.34,TexasInsuranceCodeandtherulespromulgatedthereunder,exceptthatdocumentsorrecordswhichareinitiallycomputergeneratedorelectronicallyproducedinconformitywiththisrulemayberetainedinthatmedium.
7. Duetothehigherlevelofsecurityandexpeditedrecordingtimeaffordedbyelectronicallyfilingorrecordinginstruments,promulgatedformsorotherdocumentsincidenttorealorpersonalpropertytransactions,theactualchargesorareasonableestimateofcharges,includingactualchargesorareasonableestimateofchargesbyatrustedthird‐partyprovidertoanauthorizedfiler,forelectronicallyfilingorrecording(e‐filing)suchinstruments,formsordocumentsmaybepassedthroughtotheconsumer.Suchactualchargesorareasonableestimateofchargesmaynotbemarkedup.
B. Agentmustrecreatethefileexactlyasoriginal
C. AllversionsofthecommitmentandHUD‐1settlementstatementmustbemaintainednotatingoneachtheversionnumberorsequence.
11/25/2013
1
Audit Hot ButtonsRobert York Brenda Nelson
Texas Dept of Insurance Old Republic National Title
Austin, Texas Houston, Texas
Statistics
TDI’s goal is to audit every agent once every 2 years.
TDI must complete 287 comprehensive audits a year or 72 audits per quarter to meet goal.
Latest TTIGA report indicates they will meet this goal for 2013.
Good news - expect to see your TDI auditor every two years.
2013 TEXAS LAND TITLE INSTITUTE - Audit Hot Buttons Page 2
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Additional Statistics
TDI completed 93 compliance audits this quarter.
Second highest number of audits TDI ever completed during a quarter.
Due to high volume of audits TTIGA report may show higher number of violations than normal.
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Update from TDI
Updates taking place:TeamMate
Suspension of the Policy Guaranty Fee
Recoupment Fee Collection
New Quarterly Reporting Requirements
Title Licensing will begin using new software
New ethics requirement for EO’s
New Management education requirements
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Insurance Code Violations
Texas Insurance Code Orders signed with fines and license revocation:
Section 2501.006
Section 2703.052
Section 2502.051
Section 2652.201
Prepared commitments with false information.
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Fines
Completely Avoidable Fines
Failure to timely remit guaranty fees
Failure to timely remit annual escrow audit report
Failure to timely remit Statistical Report
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Financial Concerns
Activecases at6/1/2013
Cases ReferredQtr 13-4
CasesClearedQtr. 13-4
Active Cases at 8/31/2013
Financial Program
Confidential Supervision 1 0 0 1
Receivership 5 0 1 4
Troubled Title Agents 12 3 3 12
Enforcement
Misc violations of the TIC 5 2 5 2
Rebating 1 2 2 1
License Revocation 3 3 3 3
Late reports 9 5 5 9
Fraud Unit
Misappropriate fiduciary funds 26 1 0 27
Total 62 16 19 592013 TEXAS LAND TITLE INSTITUTE - Audit Hot Buttons Page 7
Referred Cases
Active Cases in Financial, Enforcement& Fraud
16 cases referred this quarter. Two for Miscellaneous violations of Texas Ins. Code
Two for Rebating
Three for License Revocation
Five for Late Reports or Fee remittance
One for Misappropriation of Fiduciary Funds
Three for Troubled Title Agents
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Questions??
Troubled Agent…..What makes a troubled title agent?
What occurs for them to be referred to financial program?
Three agent cases have been cleared from the financial program. How do they get removed? Do they work on remediation with the Department to be removed from the program?
What is an example of Misappropriation of Fiduciary Funds?
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Insolvency
Financial Statements of Agent showsAgent to be insolvent
Agent has cash flow issues
Is this why we have the new Minimum Capitalization requirements?
When do the new requirements start?
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Other Violations
Abstract PlantsNot in compliance with Section 2501.004
and P-12 What is looked at in regards to Abstract Plants?
If an Agent’s plant subscription is not in compliance is the only solution to change their subscription?
Affiliated Business ArrangementsAgents have been cited for ABA’s not being
disclosed. These must be fully disclosed to consumer.
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Administrative Rules
Licensing –Conducting unauthorized business of insurance
Provided policies to non-licensed entity
Sold title evidence for counties which agent was not licensed.
Use of an unlicensed name or DBA name
Unlicensed person acting as an escrow officer
Issued policies for property in county where not licensed.
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Solutions
Training of employees to avoid infractionsReceipts and Disbursements don’t match HUD
No invoice to match disbursement
Schedule D not in file or incomplete
All recipients of any portion of RE Commission not disclosed on settlement statement
Bring to date of commitment is not within 30 days of closing date (most underwriting agreements require commitments to be within 30 days. Check your agency agreement)
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More Solutions
Training employees continuedRecording timely
Good funds
Incorrect premium charged
Refinance credit not given or calculated incorrectly.
Verbal or written guaranty, affirmation, indemnification or certification issued.
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Electronic Signatures
Moving towards signing documents electronically
TDI concerns?
TDI allows promulgated documents to be signed electronically if utilizing a safeguarded electronic signature.Commitment
Policy
What about the HUD-1?
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Audit Hot Buttons
Audit issues for Paperless AgentsRead P-17 as to requirements
Recreating file exactly as original
All versions of commitment and HUD must be maintained notating on each the version number or sequence.
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Guaranty Files
Maintain Complete Guaranty FilesEach version of the commitment
Completed T-00
Evidence of timely recording of documents
Invoices for all disbursements
Final version of the Receipts and Disbursement Ledger
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Minimum Escrow Accounting Procedures and Internal Controls
Management approval of 3-way recon
Management approval for disbursement made on accounts opened for more than 6 months and review of disposition of funds
Management approval for transfer of funds between guaranty files
Escrow Receivables need to be cleared timely. Negative balances on Trial balance must be investigated.
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Post Closing Audit Issues
Post Closing Audit issuesRecording Refunds
Escrow Trial Balance
Stale Dated checks
Escheating
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Audit Hot Buttons
Good news:Compare citing to last year same quarter
Relationship with TDI (more communication, team work)
With changes to TeamMate TDI is moving toward electronic files requests during audits and so agents who are paperless will not have to print.
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