ALTA Best Practices 4.1 Proposed Revisions
For those title agents who may not be familiar with them, the ALTA Best Practices consist of seven main categories known as “pillars” that settlement agents are urged to follow. ALTA updated their Best Practices back in May of 2023 to version 4.0. Changes to Pillars 3 and 4 as well as some additional resources are now proposed in the recent revision 4.1 to Best Practices.
ATA Best Practice 4.0 Pillar 3 requires the settlement agent to adopt and maintain a written information security plan (WISP) and a written privacy plan to protect non-public personal information (NPI) as required by local, state, and federal law. The proposed revision is made to align Pillar 3 with the National Institute of Standards and Technology (NIST) password reset guidelines. NIST revised their recommendations on changing user passwords to require a change if there is evidence of compromise. The current Best Practices 4.0 does not reflect a forced password change if there is evidence of a password compromise. As a result, in addition to referencing “passwords that expire after a certain period of time,” the proposed revision to Pillar 3 would now include the addition of “or upon a triggering event”, which is reflected in the NIST guidelines.
ALTA Best Practices 4.0 Pillar 4 references the recommended due diligence for closing transactions not involving state regulated title insurance policies. Pillar 4 requires the settlement agent to assess additional risks by adopting standard real estate settlement policies and procedures that help ensure compliance with (i) federal and state consumer financial protection laws and regulations, and (ii) contractual obligations as applicable to the settlement process. Currently, there is no language in Best Practices 4.0 to address assessment and analysis of the potential risks when performing closing transactions that do not involve state regulated title insurance policies. To remedy this, the following addition has been proposed:
“Perform due diligence and analyze risk profile when providing functions that fall outside of the Title Agency’s relationship with the Title Insurer and when not issuing a title insurance policy for the transaction. These functions may include (1) collection and/or disbursement of premiums, escrows, security deposits or other funds, (2) handling escrow or Settlement, and/or (3) recording documents. If engaging in these functions Company should:
- Review its state licensing requirements to determine if it is legally allowed to engage in the function. Some states have additional licensing requirements to hold funds in escrow. Other states only authorize a company to conduct a settlement when the company is issuing a title insurance policy.
- Review closing instructions with company management to confirm that management approves any risk assumption, liability and other matters identified in the closing instructions.
- Review state laws, including case law, to understand the duties and responsibilities that may be imposed by law when engaging in these functions.
- Evaluate whether, in the event of a loss or claim, the company will continue to be solvent. Such evaluation may include determining whether a loss or claim may be covered by the company’s professional liability insurance including E&O and cybersecurity insurance.”
The ALTA Best Practices 4.1 proposed revisions also include additional resources to be published in the third quarter of 2024, which would provide guidance on issues already addressed with Best Practices. This includes a Pillar 3 WISP Guidance Document which will provide specific guidance on the importance and process of creating a WISP for a settlement agent’s operations.
Lastly, FAQ Guidance on “undue risks” has been included in this revision since there has been industry discussion on issues of deposit timing referenced within the current Pillar 2 which explains that disbursement from Escrow Trust Accounts should not be taken for funds that are not fully settled or reversible; the FAQ will discuss this issue in further detail.
For more information, please refer to the ALTA Best Practice link below:
ALTA - Proposed Revisions to ALTA’s Best Practices in Public Comment Period
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