Chapter 3901-7 Title Insurance Agents
The purpose of this rule is to establish the criteria for the annual independent review of title insurance agents' escrow, settlement, closing, and security deposit depository institution accounts.
As used in this rule:
(1) "Agent" means either an individual title insurance agent or a business entity title insurance agent licensed by the Ohio department of insurance.
(2) "Escrow account" includes any escrow, settlement, closing, or security deposit account owned or maintained by the title agent being reviewed.
(5) "Transaction" means the handling of client or third party funds related to any purchase or sale of real property, or any finance or refinance secured by a mortgage on real property.
(D) Each agent shall file, pursuant to paragraph (I) of this rule, either an independent annual review or an annual review claim of exemption on a form prescribed by the superintendent on or before January fifteenth for the preceding twelve month period ending August thirty-first. Either filing must include all supplementary forms prescribed by the superintendent.
(E) Independent annual review
Each agent that handles the funds of clients or third parties shall have an independent review made of all escrow accounts related to Ohio transactions each year and filed in accordance with paragraph (I) of this rule for the preceding twelve month period ending August thirty-first unless exempted from review as provided by paragraph (F) of this rule.
(2) An agent that averages five Ohio transactions or less per month during the twelve month period ending August thirty-first is exempt from the annual review requirements of section 3953.33 of the Revised Code if the agent's escrow accounts have been reviewed during that twelve month period by one or more of the title insurance companies by which it had been appointed.
(G) Independent reviewer qualifications
(1) The independent reviewer must be a certified public accountant.
(2) The independent reviewer may not be an employee of a title insurance company nor may the reviewer be an employee of or hold an ownership interest in:
(a) The business entity being reviewed,
(b) In any affiliates of the business entity being reviewed,
(c) In any owners of the business entity being reviewed, or
(d) Any financial institution or its affiliate in which one or more escrow accounts subject to review under this rule are held.
(H) Annual review
(1) The annual review, as required under section 3953.33 of the Revised Code, shall be an agreed upon procedures engagement as defined in the "Statements on Standards for Attestation Engagements" issued by the "American Institute of Certified Public Accountants".
(2) The review shall be constructed in accordance with the guidelines set forth below. Where no exceptions are found as a result of applying the procedure, the statement "no exceptions" should be noted. Where a procedure cannot be completed because the required information is unavailable, the statement "information unavailable" should be noted and explained in detail.
(a) Obtain from the agent a listing of all agent depository institution accounts existing at anytime during the review period, including operating and other non-fiduciary accounts on the annual review supplementary form as prescribed by the superintendent for depository account information. Have the agent certify that the information on the supplementary form is complete and accurate.
(i) Report as specific findings all non-IOTA escrow accounts that do not have written instructions to either deposit the funds in an account for the benefit of a specific person or to pay the interest earned on the funds to a specific person.
(ii) Report as a specific finding all non-IOTA escrow accounts in which any interest, in the form of cash or earnings credits, is retained by the agent. For the purpose of this rule, earnings credits means an adjustable dollar amount or factor based on the balance in a deposit account that reduces fees and charges on the account or other account(s) or for other services provided by the depository institution.
(b) Test the agent's three-way reconciliations (depository institution statement to book balance to open escrow trial balance) for the most recent monthly period the account existed on or before August thirty-first of the twelve month period being reviewed and for one other randomly selected month of the period being reviewed for all agent escrow accounts including, without limitation, all multiple and individual customer escrow accounts (regular, special/interest bearing, etc.), and other fiduciary accounts. Exclude from review single customer/single purpose accounts opened under the customer's taxpayer identification number and section 1031 tax deferred exchanges opened under the customer's taxpayer identification number If the agent does not prepare an open escrow trial balance, note the omission as a specific finding and test any other type of depository institution reconciliation available. The test of the reconciliations should, include the following procedures:
(i) Foot reconciliation and any supporting schedules;
(ii) Compare depository institution balance per reconciliation with depository institution statement and have agent provide a written explanation of any differences on the annual review supplementary form as prescribed by the superintendent for agent explanations;
(iii) Compare book balance per reconciliation with control account such as check book balance and have agent provide a written explanation of any differences on the annual review supplementary form as prescribed by the superintendent for agent explanations;
(iv) Compare reconciled balances to the open escrow trial balance of the same date and have agent provide a written explanation of any differences on the annual review supplementary form as prescribed by the superintendent for agent explanations;
(v) Review the agent's open escrow trial balance for the two monthly periods. Report the file number, customer name, and amount of each negative balance over ten thousand dollars individually and the aggregate negative amount of all negative balances if such aggregate exceeds fifteen thousand dollars;
(vi) Verify deposits in transit by tracing deposits of five thousand dollars or greater and all deposits in transit for more than thirty business days, as defined in division (M) of section 3953.01 of the Revised Code, to validated deposit slip or depository institution statement for the following month;
(vii) Verify outstanding checks by tracing to the subsequent month's depository institution statement. Report the check number, check date, payee, and amount of all outstanding checks of ten thousand dollars or greater not clearing on the next month's depository institution statement;
(viii) Report the amount and the agent's description of other reconciling items of one thousand dollars or more individually, or five thousand dollars in aggregate;
(ix) Verify the agent has a voided checks procedure. The absence of a voided check procedure should be noted in the report.
(x) Determine the timing of the preparation of the three-way and depository institution reconciliations for each of two months tested. Any reconciliations that were not documented as prepared within sixty days of the depository institution statement date should be noted as a specific finding. Reconciliations not documented as reviewed by management, as evidenced by management initials and date, should be noted in the report;
(xi) Review the escrow depository institution account statements for the sample months for the presence of negative daily balances, if provided on the statement, and depository institution charges for non-sufficient funds or overdraft charges. Report the aggregate amount of the above described charges, the number of negative balance days for the month, and the highest negative balance for the month; and
(xii) For each escrow account, select a haphazard sample (as defined in the "American Institute of Certified Public Accountants Audit Sampling Guide") of twenty canceled checks and/or outgoing wire transfers per month for the sample two month periods and report the following:
(a) Checks or wire transfers one thousand dollars or greater payable to the agent, or to its affiliates or owners which do not correspond to fee amounts reflected in the documents in the related file;
(b) Checks or wire transfers with no file reference; and
(c) Any checks on which the check date is more than sixty days prior to the depository institution clearing date;
(d) If canceled checks or images of checks are available, endorsements not consistent with the payee and/or alterations to canceled checks. Report if canceled checks or images are unavailable;
(e) Checks signed by other than authorized check signer.
(c) List all states for which the agent conducts settlements.
(d) Have the agent complete and certify the annual review supplementary form as prescribed by the superintendent for listing required insurance coverage information.
(1) Required documents.
(a) Each agent subject to the provisions of paragraph (E) of this rule shall file the original independent annual review together with all required supplementary information on forms prescribed by the superintendent.
(b) Each agent exempt from the independent annual review requirements of section 3953.33 of the Revised Code by the provisions of paragraph (F) of this rule shall file an annual review exemption together with all required supplementary information on forms prescribed by the superintendent.
(a) Each agent shall file all required documents electronically unless unable to do so.
(b) An agent unable to file the required documents electronically may make a paper filing:
(i) All paper filings including the independent annual review shall be unbound, unstapled, and unfastened, printed single-side only on eight and one-half by eleven inch paper.
(ii) The filing shall be mailed to the enforcement division of the Ohio department of insurance.
(3) Filing. Every agent shall electronically file no later than January fifteenth of each year or shall mail postmarked no later than January fifteenth of each year, the required documents for the preceding twelve month period ending August thirty-first.
(4) Each agent shall mail to each title insurance underwriter it represented during any portion of the review period, postmarked not later than January fifteenth of each year, a copy the filing for the preceding twelve month period ending August thirty-first.
If any paragraph, term, or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term, or provision of this rule, but the remaining paragraphs, terms, and provisions shall be and continue in full force and effect.
The purpose of this rule is to set forth the requirements regarding the surety bond and errors and omissions coverage to be maintained by title insurance agents or agencies under conditions specified in section 3953.23 of the Revised Code.
(C) Surety bond
All title insurance agents or agencies that handle escrows in real property transactions not involving the issuance of title insurance shall have a surety bond in place that protects all parties to such transactions against theft, misappropriation, fraud, or any other failure to properly disburse settlement, closing, or escrow funds.
(1) The surety bond shall be on a form approved by the superintendent and shall provide coverage in the minimum amount of one hundred fifty thousand dollars.
(2) The surety bond shall be kept in full force and effect as a condition precedent to the title agent's authority to transact escrow, settlement, or closing functions for real estate transactions not involving the issuance of title insurance and the title insurance agent shall supply the superintendent with satisfactory evidence thereof upon request.
(a) Licensed agents who are employees of title insurance companies authorized to do business in this state and direct operations of title insurance companies authorized to do business in this state are not required to maintain separate surety bond coverage.
(b) Title insurance companies authorized to do business in this state may self-insure wholly-owned subsidiary title agencies and employees of those agencies who are licensed as title insurance agents for the purpose of surety bond coverage.
(D) Errors and omissions insurance
(1) All title insurance agents or agencies shall maintain an errors and omissions insurance policy that includes but is not limited to coverage for the agent's or agency's delegation of any agent or agency function to a third party. The policy must provide a minimum coverage amount of two hundred fifty thousand dollars.
(2) It is the title agent's or agency's responsibility to ensure that all subcontractors are covered under the agent's or agency's errors and omissions insurance policy or that any subcontractor not so covered maintains an errors and omissions policy with minimum coverage of fifty thousand dollars.
(a) Licensed agents who are employees of title insurance companies authorized to do business in this state and direct operations of title insurance companies authorized to do business in this state are not required to maintain separate errors and omissions insurance coverage.
(b) Title insurance companies authorized to do business in this state may self-insure wholly-owned subsidiary title agencies and employees of those agencies who are licensed as title insurance agents for the purposes of errors and omissions insurance coverage.
(E) Details of surety bond and errors and omissions coverage to be provided at escrow account review
Details of any surety bond and errors and omissions coverage required under this rule shall be provided on a form that is prescribed for such use by the superintendent. The details of such coverage shall be provided at the time the annual escrow account review is performed pursuant to section 3953.33 of the Revised Code.
Failure to maintain the required errors and omissions coverage or failure to maintain a surety bond as necessary shall be grounds for suspension or revocation of a title insurance license.
If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms or provisions shall be and continue in full force and effect.
The purpose of this rule is to set forth the requirements regarding the notice to be provided to mortgagors by title insurance agents concerning title insurance coverage under conditions specified in section 3953.30 of the Revised Code.
A title insurance agent issuing a lender's title insurance policy in conjunction with a residential mortgage loan made simultaneously with the purchase of all or part of the real property securing the loan, where no owner's title insurance policy has been requested, shall provide the notice set forth in the appendix to this rule to the mortgagor at the time the commitment is prepared.
(D) Notice to be maintained
The title insurance agent required to provide the notice described in this rule shall maintain a copy of the notice, signed by the mortgagor, on file for at least ten years after the effective date of the lender's title insurance policy.
If any paragraph, term or provision of this rule or the application thereof to any person or situation be adjudged invalid for any reason such invalidity shall not affect, impair or invalidate any other section, term or provision of this rule or the application thereof which can be given effect without the invalid provision or application and to this end the provisions of this rule are declared to be severable.
(A) Purpose. The purpose of this rule is to establish ownership and licensing standards for title insurance agents and agencies in accordance with division (B) of section 3953.21 of the Revised Code, which prohibits certain persons from acting as agents for a title insurance company.
(C) Definitions. As used in this rule:
(1) "Beneficial ownership" means the effective ownership of any interest in a title insurance agency or the right to control an ownership interest even though legal ownership may be held in another person's name.
(2) "Control," including "controlling", "controlled by", and "under common control with" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or non-management services, or otherwise. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing fifty percent or more of the voting securities or interests of any other person. Control shall also be presumed to exist between a natural person and an immediate family member. These presumptions may be rebutted by showing that control does not exist in fact. The superintendent of insurance may determine that control exists if the facts support such a determination notwithstanding the absence of a presumption to that effect.
(3) "Immediate family member" includes a person's father, mother, stepfather, stepmother, brother, sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, the spouse of any of the foregoing, and the person's spouse.
(5) "Prohibited person" means a person prohibited from acting as an agent for a title insurance company pursuant to division (B) of section 3953.21 of the Revised Code, and includes builders and developers.
(6) "RESPA" means the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq., as amended, and all rules, regulations and interpretations issued under RESPA, as amended, including but not limited to 24 C.F.R. Part 3500 and the Statement of Policy 1996-2 Regarding Sham Controlled Business Arrangements found at 61 Fed. Reg. 29258 et seq.
(D) No business entity may be licensed as a title insurance agency where one or more prohibited persons control the business entity.
(E) A business entity may not become licensed or remain licensed where the entity is merely a sham arrangement used as a conduit for inducements or compensation for business payments in violation of section 3953.26 and/or section 3933.01 of the Revised Code. In determining whether an entity is a sham arrangement, the superintendent may consider factors similar to those used to determine whether a controlled business arrangement is a sham arrangement under RESPA, including, but not limited to:
(1) Does the new entity have sufficient initial capital and net worth, typical of the industry, to conduct the title insurance business for which it was created or is it undercapitalized to do the work it purports to provide?
(2) Is the new entity staffed with its own employees to perform the services it provides or does the new entity have "loaned" employees of one of the parents?
(3) Does the new entity manage its own business affairs or is the new entity being run by one of the parents?
(4) Does the new entity have a office for business which is separate from any of the parents? If the new entity is located at the same business address as one of the parents, does the new entity pay fair market value rent for the facilities actually furnished?
(5) Is the new entity providing substantial services, i.e., the essential functions of the real estate settlement service, for which it receives a fee?
(6) Does the new entity perform all of the substantial services itself or does it contract out part of the work? If so, how much work is contracted out?
(7) If the new entity contracts out some of its essential functions does it contract services from an independent third party or from a parent or affiliate of a parent? If the new entity contracts out work to a parent or to an affiliate of a parent, does the new entity provide any functions that are of value to the settlement process?
(8) If the new entity contracts out work to another party, is the party performing any contracted services receiving a payment for the services or facilities that bears a reasonable relationship to the value of the goods or services received?
(9) Is the new entity actively competing in the marketplace for business or does it provide services solely for one or more of the parents?
(F) Where a person has a direct or beneficial ownership interest in a business entity title insurance agent, the only thing of value that can flow from such an arrangement, other than permissible payments for services rendered, is a return on ownership interest.
(1) Under this rule, a return on ownership interest may not include any of the following:
(a) Any payment which has, as a basis of calculation, no apparent business motive other than distinguishing among recipients of payments on the basis of the amount of their actual, estimated or anticipated referrals;
(b) Any payment which varies according to the relative amount of referrals by different recipients of similar payments; or
(c) A payment based on an ownership, partnership or joint venture share which has been adjusted on the basis of previous relative referrals by recipients of similar payments.
(2) In determining whether a payment is a return on an ownership interest or an impermissible payment for the referral of title insurance business, the superintendent may consider factors similar to those used to determine whether a payment is an impermissible payment for a referral under RESPA.
(G) A prohibited person may not serve as a partner, officer, director, or managing member of a title insurance agency, nor may a prohibited person be involved in the day-to-day operations of the title agency.
(H) Paragraph (D) of this rule applies to all persons applying for a business entity title insurance agent license on or after the effective date of this rule and to all business entity title insurance agents having a change in ownership on or after the effective date of this rule.
(I) Severability. If any section, term or provision of this rule be adjudged to be invalid for any reason, such judgment shall not affect, impair, or invalidate any other section, term, or provision of this rule, but the remaining sections, terms and provisions shall be and continue in full force and effect.