1.0 Overview

The need to maintain excellent escrow accounting records is paramount to the success of the company’s operations. The company has a fiduciary responsibility to the public to maintain current and accurate escrow accounting information.

2.0 Purpose

The purpose of this policy is to specify the company's guidelines for maintaining escrow accounts that comply with the State of Texas Minimum Escrow Accounting Procedures.

3.0 Scope

The scope of this policy covers all company escrow accounting procedures for all Escrow Branch Operations.

4.0Policy

4.1Minimum Escrow Accounting Procedures

1.Prepare a monthly escrow trial balance for each escrow account (and any other fiduciary account) which, at a minimum, lists all open escrow balances.

2.Perform a monthly three-way reconciliation of bank balance, book balance, and escrow trial balance for each escrow bank account (and any other fiduciary account). Escrow reconciliations are to contain at a minimum, a summary page with figures showing the account is in balance, an outstanding deposits list, outstanding checks list, trial balance (list of files with balances) as of the period being reconciled, and a detailed adjustment list, if adjustments are needed to bring the account in balance. Complete each three-way reconciliation within forty-five (45) days from the closing date of the bank statement of the account.

3.Include the following procedures in the three-way reconciliation:

•Research and resolve any stale dated outstanding deposits as listed on the outstanding deposit report immediately

•Any unusual outstanding checks require immediate attention and resolution such as:

•Checks payable for recordings outstanding > 30 days

•Payoff outstanding > 14 days

•Taxes and hazard insurance payments outstanding > 30 days

•Underwriter premium outstanding > 60 days

•Other checks outstanding > 90 days

Require management approval for the void and reissuance of any outstanding checks.

•Shortages or unusual balances on the trial balance require immediate attention. Shortages are to be funded from operating funds.

•Research adjustments that were required to bring the account in balance. Post corrections to the proper file so the adjustment can be cleared on the next reconciliation.

4.Assign a unique sequential number or unique identifier to each closing file.

5.All bank accounts must be styled as “Escrow" or “Trust". “Escrow account" or “trust account" must appear in the signed bank agreement, on the bank statement, and on disbursement checks and deposit slips. Such accounts are only to be utilized for escrow or trust transactions. Operating funds are never to be comingled with escrow funds.

6.Maintain documentation for the reasons for escrow file balances held longer than six months. Require management approval for disbursements from these files.

7.Require management approval for any transfers of funds between closing files or escrow accounts. Document transfers between closing files in both files.

8.Include related file numbers directly on all escrow checks and deposit slips to provide a clear and direct connection between the documents and the related file.

9.Reimburse all escrow receivables and other escrow shortages from the escrow agent’s operating account immediately upon discovery.

10.Include copies of all checks, wire documentation, deposit slips, and receipt items with the escrow reconciliations. If a bank does not return actual canceled checks with bank statements, then copies of all checks must be available in agency records, or the agency must obtain a signed acknowledgement that they will be provided upon request, and must meet the following criteria:

•• The copies of checks must be clearly legible.

•• Include both sides of every check so that endorsements can be verified; and

•• Ensure that it is unmistakable which front and back images belong together.

11.Maintain all escrow funds, including sweep accounts, in financial institutions whose deposits are federally insured or invested in United States government backed securities.

12.For attorney agents, maintain separate real estate and non-real estate trust accounts. If separate accounts are not maintained, underwriter’s transactions must be determinable and available for review.

Other Recommended Controls

13.Three-way reconciliations are to be prepared by someone unassociated with the receipt or disbursement function.

14.A manager or supervisor is to approve each three-way reconciliation. If this is not possible or practical, each reconciliation is to be reviewed by another employee, at a minimum.

15.Safeguard unused check inventory in a secure location such as a locked room or filing cabinet. Limit access to authorized individuals.

16.Two signatures are recommended on all escrow checks. Avoid the use of signature stamps.

17.An interest-bearing (investment) escrow account must meet the following criteria:

•The investment account must be styled in the name of the owner/beneficiary of the escrow funds, with the escrow agent named as trustee or escrow agent.

•The escrow agent must receive written instructions from the owner/beneficiary of the escrow funds to open an investment account. Such written instructions must be maintained in the escrow agent’s records.

•The tax Identification number used to open the interest-bearing escrow account must be that of the owner/beneficiary of the funds, not that of the escrow agent.

•The interest-bearing escrow account must be included on a control ledger or trial balance that identifies all interest-bearing accounts. The interest must be posted to the escrow account timely following receipt of the statement or other documentation reporting the interest accrued.

18.Adhere to state escheatment laws.

19.Remove signature blocks from voided checks or otherwise render them ineffective.

20.Discourage the receipt of cash. If cash is received, issue a signed, pre-numbered receipt.

21.Utilize effective internal controls over wire transfers, including at a minimum: proper segregation of authorization, initiation and verification; review of supporting documentation (e.g., written escrow agreement, closing statements, instructions, etc.) prior to execution of wire outs; immediate verification of bank advices against escrow authorization and instructions; use of personal identification numbers; and independent call backs.

22.Verify receipts posted to the validated deposits daily.

23.Always utilize positive pay or reverse positive pay, ACH blocks and outgoing international wire blocks for all escrow bank accounts. The company prohibits the use of Automatic Clearing House (ACH) transactions and international wire transactions unless there is a business need. If there is a business need, then the company will properly control the use of ACH transactions and international wire transactions to protect against unauthorized transactions.

24.Research inactive/old escrow accounts to ensure all funds are properly disbursed to the appropriate parties and the account can be closed. Funds transferred to active accounts are to be done on an individual file basis to ensure the funds are

kept in their respective files. Request a final statement showing a zero balance and “closed account" from the bank if one is not sent to the agency.

25. Consider a new escrow/trust account anytime the agency utilizes a new closing software system or changes closing software systems. This will help ensure the accounts can be reconciled properly.

The company does not wish to simply adopt a "save everything" mentality. That is not practical or cost-effective, and would place an excessive burden on the IT Staff to manage the constantly-growing amount of data.

Some data, however, must be retained in order to protect the company's interests, preserve evidence, and generally conform to good business practices. Some reasons for data retention include:

•Litigation

•Accident investigation

•Security incident investigation

•Regulatory requirements

•Intellectual property preservation

5.0Enforcement

This policy will be enforced by the Manager and/or Executive Team. Violations may result in disciplinary action, which may include suspension, restriction of access, or more severe penalties up to and including termination of employment. Where illegal activities or theft of company property (physical, financial or intellectual) are suspected, the company may report such activities to the applicable authorities.

6.0 Revision History

Revision 1.0, 01/01/2012

Revision 2.0, 09/01/2014

Revision 3.0, 11/04/2015

Revision 4.0, 11/16/2016