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 depository institution 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) “Agent” means either an individual title agent or a business entity title agent licensed by the Ohio department of insurance.

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

(4) “IOTA” account means “Interest on Trust Account”, which is an escrow account established and maintained pursuant to section 3953.231 of the Revised Code.

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

(D) Independent review

(1) Except as provided in paragraph (D)(2) of this rule, every individual title insurance agent and every business entity title insurance agent that handles the funds of clients or third parties shall have an independent review made of its escrow accounts each year on or before December thirty-first for the preceding twelve month period ending August thirty-first.

(2) Individual title insurance agents or business entity insurance agents that average five transactions or less per month with no single transaction exceeding five hundred thousand dollars during the twelve month period ending August thirty-first may comply with the annual independent review requirements set forth in section 3953.33 of the Revised Code by completing appendices A, B, C and D to this rule and providing notification as set forth in paragraph (G) of this rule that it had been reviewed during that twelve month period by one of the title insurance companies by which it had been appointed. For purposes of this paragraph, “transactions” are defined as any purchase/sale of real property, or any finance or refinance secured by a mortgage on real property, and in which a title insurance policy or title guarantee has been issued. The review by the title insurance company must have included the procedures set forth in paragraph (F)(2)(c) of this rule.

(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

(d) Any financial institution or its affiliate in which one or more escrow accounts subject to review under this rule are held.

(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. 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 a listing of all agent depository institution accounts existing at anytime during the review period, including operating and other non-fiduciary accounts. Have the agent certify that the listing of depository institution accounts is complete and accurate. The listing should contain all of the information that is included in appendix A to this rule.

(i) Identify 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 or paid to an owner or an affiliate of 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) Obtain a listing of all the agency’s affiliated companies. that are owned or controlled, in whole or in part, by a person or persons prohibited from acting as a title agent pursuant to division (B) of section 3953.21 of the Revised Code or by a builder or developer. 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) 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 in appendix E to this rule ;

(iii) Compare book balance per reconciliation with control account such as check book balance and have agent provide a written explanation of any differences in appendix E to this rule;

(iv) Compare reconciled balances to the related open escrow trial balance of the same date and have agent provide a written explanation of any differences in appendix E to this rule;

(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 one thousand dollars individually and the aggregate negative amount of all negative balances if such aggregate exceeds five thousand dollars.

(vi) Verify deposits in transit by tracing deposits of five thousand dollars or greater and all deposits in transit for more than two 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 canceled checks returned with the subsequent month’s depository institution statement or to the depository institution’s electronic image of canceled checks. 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) Obtain agent’s voided checks procedure in appendix D to this rule.

(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 as a specific finding.

(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.

(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;

(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.

(d) List all states for which the agent conducts settlements.

(e) 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) All title agents, whether or not subject to an annual review, shall submit copies of appendices A, B, and C to this rule directly to the department of insurance by January thirty-first each year.

(2) The title insurance agent shall provide a copy of the annual review and completed copies of appendices A, B, C, D and E to this rule to each title company it represents represented during any portion of the review period and to each it as of the date the report is issued within fourteen days of the completion of the review.

(3) If no annual review has been performed because the agent did not own or maintain any escrow accounts during the twelve month period ending the preceding August thirty-first, the agent shall notify each title insurance company it represents of the non-review status on or before December thirty-first of that same year.

(4) Each title insurance company shall notify the department of insurance’s enforcement division of the following by January thirty-first:

(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 Depository Accounts used by Title Insurance Agent

Agent Name_______________________________________________________________

Address___________________________________________________________________

Telephone_______________________________ Fax_______________________________

E-Mail Address_____________________________________________________________

Date___________________________________________________

NPN Number (Individual)__________________________________

Last four digits of Tax ID (Business Entity)____________________

List each account in existence during the reporting period:

(Including existing accounts and accounts opened or closed during the reporting period)

Depository Name

Depository Address

Account Holder Name

Account Type (Escrow, Operating, Other)

Account Number

Date of most current Reconciliation

Authorized Check Signer

For each escrow account, identify whether it is an IOTA account, a single customer/single purpose account opened under a customer tax identification number, or a section 1031 tax-deferred exchange account set up under a customer taxpayer identification number. Explain why each non-IOTA account is exempt from the requirements of section 3953.231 of the Revised Code. Explain all accounts marked as “Other”.

— Note: If more space is needed, please print another copy of Appendix A, Page 1.

I hereby certify that this is a complete and accurate listing of all bank accounts maintained by:

Agent_______________________________________________________________________

I further certify (agent)__________________________________________________________

Is in compliance with Section 3953.231 of the Revised Code.

Signature_____________________________________________________________________

Printed Name__________________________________________________________________

Job Title______________________________________________________________________

Date_________________________________

Appendix B

Listing of all affiliated business entities of the Agent that are owned, in whole or in part, or are controlled either by a person prohibited from acting as a Title Agent pursuant to Section 3953.21 (B) of the Revised Code or by a builder or Developer.

Affiliated Business Type of Business Ownership Interest in Agency

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:____________________________________________

Appendix D

Voided Checks Procedure

Agent should fully explain the procedures used in handling voided checks:

I hereby certify that this is the voided checks procedure used in the ordinary course of business by this Agent.

Agent/Agency Name____________________________________________________

Signature_____________________________________________________________

Printed Name__________________________________________________________

Job Title______________________________________________________________

Date____________________________________

Appendix E

Agent’s written explanation (s):

Effective: 07/24/2008

R.C. 119.032 review dates: 05/08/2008 and 12/22/2011

Promulgated Under: 119.03

Statutory Authority: 3901.041, 3953.33

Rule Amplifies: 3953.33

Prior Effective Dates: 1/1/07