- March 08, 2002
- All Issuing Offices
- Trust/Escrow Accounts Positive Pay and Reverse Positive Pay
Recently an Agent in Florida had a frightening experience. A check was presented through the Federal Reserve Clearing House System for $500,000.00. Since this would have created an overdraft situation the bank holding the Agent's Escrow account called the Agent to advise of the apparent overdraft. There was an instantaneous investigation into the check and it was immediately learned that the document was entirely bogus. The check was not part of the Agents valid check stock but was an instrument copied apparently by someone who had obtained a check in a closing and subsequently created a forged copy. The check also appears to be connected to a terrorist financing organization.
Had the check been for $475,000.00, the bank would have cleared the check because there were sufficient funds at that amount. Had the check cleared and the Agent did not reconcile its Escrow account in a timely manner (i.e. within 30 days), the Agent might well have lost its recourse against the bank for honoring this fraudulent check.
By way of contrast, had the Agent's trust account been protected by "Positive pay" or "reverse positive pay", the check could not have cleared without the Agent having had an opportunity to authorize payment.
Positive Pay is a system whereby the Agent transmits a list of the checks that it has issued each day to the bank, and the bank is to match up that list with the checks that are presented on the Agent account for payment. Only checks, which are on one of the submitted lists, will be honored for payment. If the check is not on one of the lists, they will advise you and unless you give authorization they will not honor that check.
Although there are several variations Reverse Positive Pay is typically a system whereby the bank on a daily basis forwards to the Agent a list of all the checks that have been presented to the bank for payment. The Agent then has a brief interval of time in which approve or object to each check and must notify the bank in order for the daily "batch" of checks to be honored.
We strongly suggest that you meet with your bank on either Positive or Reverse Positive Pay immediately. A loss like the potential loss described above would force most title insurance agents into bankruptcy, expose the agency to civil liability, and costly litigation.
It is important that every Title Agent maintain its Escrow account with the
protection afforded by either Positive Pay or Reverse Positive Pay, which adds
a considerable element of safety against Escrow losses. It is equally important
to ensure that all Escrow accounts are fully reconciled in a timely matter
each month, and that through review of negative and old file balances be conducted
on a regular basis. This review should take place as often as possible, but
at a minimum on a weekly basis.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.