Chapter 3901-7 Title Insurance Agents

3901-7-01 Annual review of title insurance agent escrow accounts.

(A) Purpose

The purpose of this rule is to establish the criteria for the annual independent review of title agent’s escrow, settlement, closing, and security deposit bank accounts.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3953.33 of the Revised Code.

As used in this rule:

(1) Affiliated company means any person that is, directly or indirectly, owned or controlled by the same person or by the same group of persons that directly or indirectly, own or control the business entity title insurance agent. This term includes parents and subsidiaries. Control and affiliated status shall be presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote or hold proxies, representing ten percent or more of the voting securities of any other person.

(2) “Escrow account” includes any escrow, settlement, closing, or security deposit account owned or maintained by the title agent being reviewed.

(3) “Person” means any natural person or any business entity as defined in section 3905.01 of the Revised Code.

(D) Independent review

Every individual title insurance agent and every business entity title insurance agent that handles escrow accounts shall have an annual independent review made of its escrow accounts within ninety days after the close of its previous fiscal year.

(E) 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, or

(F) 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.

(a) Obtain a listing of all agency bank accounts, including operating and other non-fiduciary accounts. Have the agent certify that the listing of bank accounts is complete and accurate. The listing should contain all of the information that is included in appendix A to this rule.

(b) Obtain a listing of all the agency’s affiliated companies. Have the agent certify that the listing of affiliated companies is complete and accurate. The listing should contain all of the information that is included in appendix B to this rule.

(c) Review and test the agent’s three-way reconciliations (bank statement to book balance to open escrow trial balance) for the most recent monthly period available for all agent escrow accounts including, without limitation, all multiple and individual customer escrow accounts (regular, special/interest bearing, etc.), section 1031 tax deferred exchanges, and other fiduciary accounts. If the agent does not prepare an open escrow trial balance, note the omission as a specific finding and review any other type of bank reconciliation available. The test of the reconciliations should, at a minimum, include the following procedures:

(i) Foot reconciliation and any supporting schedules;

(ii) Compare bank balance per reconciliation with bank statement and have agent resolve differences;

(iii) Compare book balance per reconciliation with control account such as check book balance, general ledger, etc. and have agent resolve differences;

(iv) Compare reconciled balances to the related trial balance of the same date and have agent resolve differences;

(v) Verify deposits in transit by tracing significant deposits to validated deposit slip or bank statement for the following month;

(vi) Verify outstanding checklist by tracing canceled checks returned with the subsequent month’s bank statement. Follow up on all large outstanding checks not clearing in the subsequent month, and any other outstanding checks not clearing in one hundred twenty days;

(vii) Verify propriety of other material reconciling items by reviewing appropriate support;

(viii) Note any reconciling items more than thirty days old and discuss with agency personnel;

(ix) Examine voided checks and verify that they are properly defaced.

(d) Review three-way reconciliations, or any other type of bank reconciliation available, for all agent escrow accounts referenced in paragraph (F)(2)(c) of this rule for three months of the proceeding twelve-month period which shall be selected on a random basis. Determine the timelines of the preparation of bank reconciliations. Determine management review and approval. Any reconciliations that were not prepared in a timely manner or reviewed by management should be noted as a specific finding.

(e) If prepared, review the agent’s trial balance for the most recent monthly period available for all escrow accounts. Note unusual items and investigate. The lack of a timely trial balance and/or any unusual items that are not adequately resolved by the person performing the analysis should be noted as a specific finding.

(f) Review all escrow bank account bank statements and trial balances for unusual items, e.g. negative balances, non-sufficient funds or other large or frequent bank service charges, or large even-dollar disbursements and investigate any such items. (In certain commercial transactions, large even-dollar amounts are not uncommon. For these transactions, a sample of such disbursements should be selected.) Any unusual items including the retaining of interest that are not adequately resolved by the person performing the analysis should be noted as a specific finding.

(g) For each escrow account, select a representative sample of canceled checks and wire transfers for the preceding twelve-month period and review same for unusual items. The actual number of canceled checks and wire transfers sampled should be disclosed along with an explanation of the number selected. The following items, although not all-inclusive, should result in further investigation and resolution by the person performing the analysis. Any of the following items that are not adequately resolved by the person performing the analysis should be noted as a specific finding:

(i) Checks or wire transfers for large amounts payable to the agency or its affiliates or owners which do not appear to be fees;

(ii) Large even-dollar amounts (in certain commercial transactions, large even-dollar amounts are not uncommon; for these transactions, the escrow file should be reviewed to determine if the transaction is valid);

(iii) Checks or wire transfers with no file reference;

(iv) Checks or wire transfers with unusual references;

(v) Slow clearing payoffs or proceeds;

(vi) Improper or unusual endorsements;

(vii) Alterations to canceled checks;

(viii) Checks payable to cash or bearer or to banks for cashier’s checks; and

(ix) Unusual transfers between files and/or bank accounts.

(h) Review the clearing of a representative sample of payoffs, proceeds, or other large escrow account checks or wire transfers for the most recent monthly period available. Trace payments to underlying source documentation. The actual number of payoffs, proceeds, or other large escrow account checks or wire transfers sampled should be disclosed along with an explanation of the number selected. Investigate instances in which such large checks or wire transfers failed to clear within thirty days of issuance. Any unusual items that are not adequately resolved by the person performing the analysis should be noted as a specific finding.

(i) Review a representative sample of files for written instructions or external support of the escrow account records. The files for review should be selected from the reconciliation review and from significant untimely clearing items at paragraphs (F)(2)(c) and (F)(2)(h) of this rule, dormant files and open and closed files at random. The actual number of files sampled should be disclosed along with an explanation of the number selected. Any instances or inadequate external support that are not resolved by the person performing the analysis should be noted as a specific finding.

(j) List all states in which the agent/agency conducts settlements.

(k) Have the agent complete appendix C to this rule which is a listing of required insurance coverages. This schedule must be completed in its entirety by the agent.

(G) Notification

(1) The title insurance agent shall provide a copy of the annual review and completed copies of appendices A, B, and C to this rule to each title company it represents within fourteen days of the completion of the review.

(2) If no annual review has been performed because the agent does not own or maintain any escrow accounts, the agent shall notify each title insurance company it represents of the non-review status within ninety days of the close of the previous fiscal year.

(3) Each title insurance company shall notify the department of insurance’s enforcement division within one hundred twenty days of the end of the title agent’s fiscal year of:

(a) Each title insurance agent who has failed to file with the company either an annual review or a notification of non-review status, and

(b) Each title insurance agent whose annual review contains specific findings. A copy of the review and all schedules shall be attached to the notification.

(H) Severability

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.

Appendix A

LISTING OF ALL AGENT AND AGENCY BANK ACCOUNTS

AGENCY NAME:________________________________________________________

DATE:___________________________________

BANK NAME & TYPE OF ACCT. (Escrow, Operating, etc).

ACCOUNT NUMBER

BANK ADDRESS

AUTHORIZED CHECK SIGNERS

DATE OF MOST CURRENT RECONCILIATION

I HEREBY CERTIFY THAT THIS IS A COMPLETE AND ACCURATE LISTING OF ALL BANK

ACCOUNTS MAINTAINED BY:_______________________________________________________________

AGENT/AGENCY NAME

Printed Name:____________________________________________________

Signature:_______________________________________________________

Job Title:________________________________________________________

Date:___________________________________________________________

Appendix B

LISTING OF AFFILIATED COMPANIES OF THE AGENT AND AGENCY

AGENCY NAME:____________________________________________________

DATE:_______________________________________

COMPANY

AFFILIATION

TYPE OF BUSINESS TRANSACTED WITH AGENCY, IF ANY

I HEREBY CERTIFY THAT THIS IS A COMPLETE AND ACCURATE LISTING OF ALL AFFILIATED COMPANIES OF:________________________________________________________________________

(Agent/Agency Name)

Printed Name:____________________________________________________

Signature:_______________________________________________________

Job Title:________________________________________________________

Date:___________________________________________________________

Appendix C

Current listing of insurance coverages as required in Revised Code Section 3953.23

Agency/Agent Name:______________________________________________________

Named Insured:___________________________________________________________

Errors & Omissions Insurance Policy/Malpractice Policy Company/Insurer Name:____________________________________________________

Policy Number___________________________________________________________

Policy Limits per occurrence/claim:___________________________________________

Effective/Expiration Dates:__________________________________________________

Surety Bond For Non-Title Related Closings

Company/Insurer Name:____________________________________________________

Policy Number___________________________________________________________

Policy Limits per occurrence/claim:___________________________________________

Effective/Expiration Dates:__________________________________________________

I hereby certify that the above provided information is a complete and accurate listing of my required insurance information. I understand that Errors and Omissions insurance must be maintained for as long as a title agent remains licensed and Surety Bond coverage must be maintained so long as non-title settlements are conducted by the licensed title insurance agent. Additionally, I understand that I may be required to provide copies of all insurance policies upon request by the Department of Insurance.

Signature of Officer, Director, Owner or Title Agent

Date:_______________________________________________

Printed Name:________________________________________

Job Title:____________________________________________

Effective: 01/01/2007

R.C. 119.032 review dates: 12/22/2011

Promulgated Under: 119.03

Statutory Authority: 3901.041 and 3953.33

Rule Amplifies: 3953.33

3901-7-02 Title insurance agents maintenance of surety bond and errors and omissions coverage.

(A) Purpose

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.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3953.23 of the Revised Code.

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.

(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.

(3) Title insurance companies authorized to do business in this state may self-insure wholly-owned subsidiary title agencies in order to comply with the requirements of this paragraph.

(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.

(F) Penalties

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.

(G) Severability

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.

Effective: 02/12/2007

R.C. 119.032 review dates: 12/22/2011

Promulgated Under: 119.03

Statutory Authority: 3901.041 and 3953.23

Rule Amplifies: 3953.23

3901-7-03 Title insurance agents notice to mortgagors.

(A) Purpose

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.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 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.

(E) Severability

Appendix

NOTICE OF AVAILABILTY OF OWNER’S TITLE INSURANCE

Purchaser(s)/Borrower(s) Name(s): _________________________________________

Property Address: _______________________________________________________

Agency Name and File No. ________________________________________________

Your residential mortgage lender has required the purchase of a Loan Title Insurance

Policy (“Lender’s Policy”) in connection with your purchase of the property at the address listed above. The Lender’s Policy will be issued insuring that your mortgage to that lender is the first and best lien against the property you are buying. This policy, however, does not protect your ownership interests in the property.

To protect yourself from errors in the title examination and from “hidden defects” in your title to your residence, you must purchase an Owner’s Policy of Title Insurance (“Owner’s Policy”). An Owner’s Policy, for example, will protect you if the title examiner misses a previously recorded mortgage on your property during the records search and later the lender who owns that mortgage attempts to enforce it against you.

The Owner’s Policy also protects you against hidden defects in your title to your property including, but not limited to, fraud, missing heirs to a probate that have an interest in your property, incorrect legal descriptions, unreported easements, incompetent prior owners, Medicaid liens, and other matters that could affect your ownership. If you have purchased an Owner’s Policy and have a covered claim, the title insurance company will pay the legal fees, whether or not the covered claim is valid, and, if the claim is valid, the title insurance company will pay the amount, up to policy limits, to clear up the problem.

If you do not have an Owner’s Policy, you may be held responsible for the value of the hidden defects and will have to pay your own legal fees, even if the claim against your property turns out to be without merit. This is not a complete description of an owner’s title insurance policy and you should read the policy itself to see the terms, conditions, exceptions and exclusions of the policy.

The premium for an Owner’s Policy for the property purchase price of $_______________ is $_______________. A Homeowner’s Policy of Title Insurance (Homeowner’s Policy), which provides enhanced or additional coverage over the Owner’s Policy is available for a higher premium. Your lender already requires a Lender’s Policy which has a premium of $_______________. If you purchase an Owner’s or Homeowner’s policy, the cost of the Lender’s Policy goes down to $100.00 so the actual additional cost to you for the Owner’s or Homeowner’s policy is reduced by the difference between the cost of the base Lender’s Policy you would have paid and $100.00.

Please contact your title agent at __________________ if you have any questions about title insurance or would like to purchase an Owner’s or Homeowner’s policy.

The use of this form is required by section 3953.30(B) of the Ohio Revised Code and is regulated by the Ohio Department of Insurance.

I (We), the undersigned purchaser(s)/borrower(s) acknowledge that I (We) have received a copy of this two-page form, Notice of Availability of Owner’s Policy of Title Insurance.

Signed:______________________________________

Printed Name:_________________________________

Date:____________________

Signed:______________________________________

Printed Name:_________________________________

Date:____________________

Effective: 01/01/2007

R.C. 119.032 review dates: 12/22/2011

Promulgated Under: 119.03

Statutory Authority: 3901.041 and 3953.30

Rule Amplifies: 3953.30

3901-7-04 Title insurance controlled business arrangements.

(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.

(B) Authority. This rule promulgated pursuant to the authority vested in the superintendent under section 3901.041 of the Revised Code.

(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.

(4) “Person” means any natural person or any business entity as defined in division (A) of section 3905.01 of the Revised Code.

(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.

Effective: 01/01/2007

R.C. 119.032 review dates: 12/22/2011

Promulgated Under: 119.03

Statutory Authority: 3901.041

Rule Amplifies: 3953.21