Friday, January 11, 2008

If you are a Pennsylvania title agent

and you haven't ever filed an escheat report with the state, please do so.

Uncleared checks and expired escrows have to be turned over. The Department of the Treasury is doing a statewide audit. It's a random selection but they intend to be thorough, so don't procrastinate.


Dave Wirsching said...

Diane - it might be helpful to let everyone know the type of items and how long before an item needs to be turned over.

Diane Cipa, The Closing Specialists® said...

Good idea, Dave.

Look at every bank account including operating, transaction, escrow, sweep - whatever.

Every uncashed check should be considered abandoned property and those funds should be escheated.

If you voided a check and you retained the money rather than escheat, you need to escheat those funds now. [The auditors will look at every voided check to see if you reissued a replacement.]

Review your dormant escrow files. TIRBOP requires that you have a written escrow agreement. If the escrow has expired and the parties have not resolved the matter and you are unable to resolve the matter, you should send the funds to the state now.

Let me give you an example.

Let's say you escrowed $300 for final water and sewer bills and the seller never sent the bill in for payment. You should attempt to get the bills and pay them. Alternatively, you could simply send all of the money to the municipal authorities. What you cannot do is just leave the money sitting in your escrow account. Our treasury department takes the position that the money belongs to someone and that someone is not you.

If, when you look at those old files, you decide that your staff did a poor job of it, make a new years resolution to retrain and regroup.

I found as I went through my audit that the notes in the files were extremely valuable. I had to reconstruct the circumstances of many files, whether the amount of money in question was $71000 or $15.

The auditors were very nice. The auditors were extremely thorough.

Anonymous said...

Doesn't it only apply to uncashed checks that are more than 5 years old and over $50.00?

Diane Cipa, The Closing Specialists® said...

You are correct about five years, but amounts less than $50 to have to be escheated. You can aggregate them or account for them separately.

The folks who handle the receipt of these reports at Treasury are very helpful. I was unsure I had done it correctly and they checked the report and let me know it was okay. They'll answer any questions you have.

When the auditors visited my office, they used the escheat report AND every bank statement and reconcilation report and checked every single item.

Each check and deposit had to have its resolution in a way that they could understand before it was decided that I didn't owe that money to the state.

As I said, they were patient and very nice, but we did have a few files that we had some trouble locating as they were old files that hadn't been scanned.

We eventually found them and were able to reconstruct the circumstances.

For instance, we had voided a check for say $25 which had been issued for a lien letter. I was able to see from the file notes that the property wasn't in the area for that service and the check had been returned. I was also able to show from file notes that we did not charge the consumer for the $25.

We have always tried to maintain full and complete notes in our files and this audit proved to me the value of that practice.

Diane Cipa, The Closing Specialists® said...

Dont' forget to review TIRBOP guidelines for escrow fees. You are permitted to retain your escrow fees and fees for extra work, if needed. Just account for them so that whatever you have done is understandable.

Anonymous said...

So you were subjected to an audit after you filed a return? Was it the first time that your filed a return? Did they give you notice of the upcoming audit or was it a surprise?

Yikes, I do not keep a void check log, guess I need to start.

I have, over the years, heard horror stories about the audit that they did at Commonwealth in Center City years ago. They wanted millions in escrow and Commonwealth refused on the basis that the funds where collected to clear title and without the payments being made, title issues could remain. Don't know what the final result was.

Diane Cipa, The Closing Specialists® said...

The audit was for what is now an inactive agency. When I formed TCS, the old agency escrows were transferred into TCS but maintained tags identifying them as part of the old escrow. I escheated from TCS, so I'm not certain if that played a role in the selection process for audit.

The supervisor of the auditing team came the first day and he did say that companies who have escheated funds are not typically audited, however, they had considered my case and decided to proceed with the audit anyway.

I can't say I wasn't nervous. I run an office with what might seem to some as redundant checks and balances but I really want to have a good handle on the money. That said, you never know when someone might have made a mistake that our security protocol might have missed and in any case, I think everyone is nervous when dealing with the unknown.

I heard about the Commonwealth audit from an underwriting attorney [not Commonwealth] here a few days ago and he said they did have to escheat millions. Perhaps I misunderstood what he said.

On the voided check issue, when you void a check doesn't your accounting system retain the fact that a check was voided? I use Quicken and QuickBooks and both retain the info on voided checks.

Reconstructing file notes on voided checks was really just looking through the file for any notes that might help explain what happened. In the case of lien letters, there was usually a letter in the file form the municipality that gave a clue or sometimes you could tell from the coordinators notes.

Suffice it to say, having notes, even seemingly incidental notes, was the key to clarification.

Diane Cipa, The Closing Specialists® said...

I guess I should add that companies who run joint ventures or multiple ABAs might have a hard time of it if these companies were co-mingling transactions in accounts.

Any agency who purports to close transactions - as opposed to those who run approved attorney programs - has to run those transactions through an escrow account of some kind. It's not sufficient to say that someone else does that for you. YOU are responsible for YOUR agency business.

Diane Cipa, The Closing Specialists® said...

Hmmm, I guess I am also presuming that everyone IDs their checks in the register with a file name. Boy, if you don't, I don't know how you'll be able to put two and two together.

Anyway, good luck.