Compliance with Escrow Trust Accounting Best Practices
How to have my three-way reconciliation reports ready for an underwriter audit
What would happen if a mortgage payoff was never received by the bank or if one of your client ledgers had a negative balance that went unnoticed for several months? Or perhaps one of your closers neglected to write a tax collector check or funds you were supposed to get never arrived or were applied to another client's closing?
These are only a few instances in which a routine reconciliation of your trust accounts might assist in identifying issues and allow you to take the necessary corrective action. But finishing a reconciliation is simply the first step. ALTA’s best practices recommends to complete, review and analyze reconciliation reports every month, whether they are generated internally or by a third-party service, due to the significant amount of valuable information they contain.
A 3-way reconciliation is a great way to identify any possible problems with your escrow account because it verifies that the trial balance, book balance, and escrow bank balances all match up. Further, you must also look at each supporting report that accompanies a 3-way reconciliation report for potential exceptions.
Trial Balance provides the balance of every file with both positive and negative balances
Outstanding Receipts and Disbursements which you have booked, but have not yet cleared the bank.
Book Balance Report, containing the details of the receipts and disbursements that have been posted to the book during the period.
Statement Proofing Register, providing the list of all receipts and disbursements that have cleared the bank during the period.
When reviewing the three-way reconciliation reports look for potential red flags, such as:
Files with negative balances
File balances of $10,000 or more that are over 10 days old
File balances of any amount over 120 days
Outstanding checks over 180 days old
Outstanding mortgage payoffs over 10 days old
Deposits in transit over 90 days old
We at Title Aid, have been assisting underwriters, title agents and real estate attorneys with the preparation and assessment of the three-way reconciliation since 2006. We are experienced with all closing software’s and offer competitive pricing based on the monthly cleared transactions. Reach out to us for a free assessment.