Do You Have a Process For Reporting Your Unclaimed Escrow Balances?

Blog Post by Josiah Osibodu, Managing Partner – Consulting Services

Each state has different rules, but one thing is consistent throughout all the U.S., companies must report their unclaimed escrow balances to the state, each year.  With all the news focusing on the life insurance industry, we want to use this opportunity to discuss another unclaimed property issue inherent in the insurance industry, specifically title Insurance.  With the collapse of the real estate market during the last few years, escrow balances could have remained outstanding for various reasons and subsequently due for reporting to the states as unclaimed property.  Many title insurance companies are in the dark when it comes to understanding the States’ Unclaimed Property laws.  

Title insurance companies may function as escrow agents that receive funds from borrowers and lenders as well as purchasers and sellers.  They prepare closing statements and disburse escrow funds during the closing process.  The funds collected can be placed into demand deposit accounts until the close of escrow.  When customers do not instruct the disbursement of the funds or the disbursed checks are not cashed, there may be unclaimed property obligations to report. 

So what are your responsibilities as a title insurance company?  We suggest that you start by first identifying all your outstanding escrow balances, make attempts to find the party entitled to the funds, and when all else fails, then you should report the escrow balances to the appropriate state.  Proactive compliance is recommended, especially now that the states are scrutinizing the insurance industry’s unclaimed property compliance procedures.  Proactive compliance could also mitigate the risk of a state audit.  Many states have voluntary disclosure programs that title insurance companies can avail themselves in order to address issues relating to the unclaimed escrow balances.  States tend to provide incentives, such as waiver of interest and penalties, to promote voluntary compliance.  Additionally, designing and implementing written unclaimed property policies and procedures, could also enhance the company’s proactive compliance process.