TDI Enforcement Actions John Rothermel Heidi Junge December 21, 2017
In order to obtain a CE Certificate or CLE Credit, you must listen to the webinar for a minimum of 55 minutes obtain the password (provided at the end of the presentation) follow the instructions as given 2
ATTORNEY INFORMATION Because of opinions expressed by the Texas Department of Insurance (TDI) concerning rebates, legal credit is available only to: Attorneys who own title agencies that are Stewart Title Guaranty Agents Attorneys employed by a title insurance agent licensed with Stewart Title Guaranty or Stewart entities Fee attorneys who have an Escrow Officer license through a Stewart Title Agent or Stewart entity We welcome any other lawyers to listen, but cannot provide continuing education credit to you. 3
TDI Enforcement Actions and How To Avoid Them John Rothermel Senior Vice President Regional Underwriting Counsel Senior Underwriter Heidi E. Junge Assistant Vice President Underwriting Counsel Associate Senior Underwriter SW Regional Underwriting Office Stewart Title Guaranty Company
TDI Enforcement Actions For a detailed look at enforcement actions: https://wwwapps.tdi.state.tx.us/inter/asproot/commish/da/c lips2017.asp Unfortunately, you have to scroll through the list since title is not well represented, but we will show a few here in this presentation: 5
TDI Enforcement Actions First Nationwide Title Agency of Texas, L.L.C. of Austin – Order Number: 20175041 – Date of Order: 4/24/2017 – Action Taken: Fined $4,000 – Violation: Failed to timely submit annual trust fund account audit reports 6
P-49. Annual Audit A. As provided in Article 9.39, Texas Insurance Code, every title insurance agent and direct operation shall have an annual audit prepared, and before the 91st day after the date of termination of its fiscal year, shall send by certified mail, postage prepaid, to the Texas Department of Insurance one copy of such audit report with a letter of transmittal, and each such agent, shall also send a copy of such letter of transmittal and audit report to every title insurance company which it represents. 7
P-49. Annual Audit B. If a title insurance company fails to receive an audit report from any of its agents or direct operations before the 91st day after the date of the termination of the fiscal year of the agent or direct operation, the title insurance company shall report that omission to the department not later than the 30th day after the expiration of the 90-day period. 8
TDI Enforcement Actions Eastland Title Company of Hillsboro – Order Number: 20175004 – Date of Order: 3/28/2017 – Action Taken: Fined $2,800 – Violation: Failed to timely submit annual trust fund audit reports 9
G.2. Audit and Review Of Agent/Direct Operation Escrow And Trust Accounts Definitions I. A. “Audit and review of Agent/Direct Operation escrow and trust accounts” includes auditing of escrow and trust accounts, auditing of statistical reports, auditing of all other accounting records and review of complaints relating to Agents/Direct Operations. B. “Escrow and trust accounts” includes those accounts which are subject to annual audit pursuant to Texas Insurance Code §§2651.151- 157. 10
G.2. Audit and Review Of Agent/Direct Operation Escrow And Trust Accounts Procedures II. Upon the request of the Commissioner of Insurance, the Board will authorize expenditure of funds from the guaranty fee account to retain, compensate and reimburse for reasonable and necessary expenses persons who will audit and review Agent/Direct Operation escrow and trust accounts. Such persons shall act solely under the direction of the Commissioner of Insurance, or his designee and make such reports as are required. 11
P-27. Disbursement from Escrow or Trust Fund Accounts This Rule shall implement Art. 9.39A, Texas Insurance Code. A. Definitions 3. "Trust account" or “escrow account” means an account maintained at a financial institution for holding and disbursing funds to be paid to and on behalf of parties to a transaction and which are subject to annual audit pursuant to Art. 9.39, Texas Insurance Code. 12
P-27. Disbursement from Escrow or Trust Fund Accounts B. General Provisions 1. Good Funds in an amount equal to all disbursements must be received and deposited before any disbursement may be made. Partial disbursements, prior to the receipt and deposit of good funds, are not permitted. If a party to the transaction submits too much money, that overage which will not ultimately be a part of the transaction may be refunded at or prior to settlement. 13
P-27. Disbursement from Escrow or Trust Fund Accounts B. General Provisions 2. A record of all receipts reflecting the date on which the funds are actually received must be entered on the books of the trustee before any disbursements are made. 3. The financial institution or branch of a financial institution in which the trust fund account is maintained must be located within the geographic bounds of the State of Texas. 14
P-27. Disbursement from Escrow or Trust Fund Accounts B. General Provisions 4. Even though funds are defined as good funds in this Rule, a trustee is not required to disburse if reasonable business judgment would indicate that the funds may not be collected. 15
P-27. Disbursement from Escrow or Trust Fund Accounts B. General Provisions 5. An Immediately Available Funds Procedure Agreement (Form T-37) must be fully executed by the Financial Institution, the Federally-insured Lender and the Title Company prior to issuance of checks intended to qualify pursuant to subparagraph A.1.j. of this rule. 16
P-27. Disbursement from Escrow or Trust Fund Accounts B. General Provisions 5. If the Federally-insured Lender has appointed an Agent and delegated to the Agent some of the duties and responsibilities of the Federally- insured Lender, the Title Company must use an Immediately Available Funds Procedure Agreement (Agent Designation for Federally- insured Lender) (Form T-37A) which must be fully executed by each of the four parties to the Agreement including the Agent for the Federally- insured Lender. 17
Minimum Standards, Specific Instructions and Report Forms For Audit Of Trust Funds Required Of Texas Title Insurance Agents, Direct Operations, Title Attorneys And Attorneys Licensed As Escrow Officers 18
Specific Areas and Procedures 1. Determine that good funds for a transaction are received and deposited before any disbursements are made in accordance with Article 9.39A and related Procedural Rule P-27. 2. Funds which remain in an account in a dormant condition for a long period of time need to be closely scrutinized. Funds that are being misappropriated often find their way to these accounts in some manner, so appropriate auditing procedures shall be performed on these accounts. Current state law specifies certain criteria that may require dormant funds held longer than three years to escheat to the state treasurer. All credit balances open three years or longer must be explained in detail on Exhibit E-1. 19
Specific Areas and Procedures 3. Checks written out of an escrow account to the agency’s operating account or to another escrow account shall be examined carefully, especially if the checks appear to be disbursements for anything other than normal charges to a specific guaranty file. Transfer of funds from one account to another is permissible providing both files contain proper authorization. 20
Specific Areas and Procedures 4. Escrow receivables are the responsibility of the escrow agent and constitute shortages in the account which are deemed to be violations of Article 9.39. Restitution of every shortage shall be made within forty-five (45) days from the closing date of the bank statement of the account which reflects the transaction creating the escrow receivable. All escrow receivables in excess of $200 shall be itemized and thoroughly explained on Exhibit E-2. Any irregularities such as bank overdrafts shall be thoroughly explained on Exhibit E-3. 21
Specific Areas and Procedures 5. Some support for each disbursement must be in the guaranty file, and it shall be determined that the disbursements were to logical payees. 22
TDI Enforcement Actions First Republic Title, L.L.C. of Houston ‒ Order Number: 20174997 ‒ Date of Order: 3/21/2017 ‒ Action Taken: Fined $15,000 ‒ Violation: Improperly paid, allowed, or permitted a thing of value for engaging in business of title insurance or for soliciting or referring title insurance business. 23
Thing of value [Sec. 2501.003 (10)] includes any payment, advance, funds, loan, service, or other consideration. 24
Thing of value (P-1.v) includes any payment, advance, funds, loan, service, or other consideration. 25
P-53 Rebates and Discounts Prohibited. 1. For the purposes of this rule the following terms have the following meanings. a) “Authorized Person” means a person doing the business of title insurance under the authority of the Texas Title Insurance Act of the Insurance Code. b) “Producer” means a real estate broker, real estate agent, lender, mortgage company, mortgage broker, builder, developer, attorney, or architect who is not an Affiliate of an Authorized Person. A Trade Association is not a Producer; however, Paragraphs 2 and 3 of this rule apply to a Trade Association. 26
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