Your title company may temporarily be responsible for hundreds of thousands of dollars of your money.
That money goes into an escrow or trust account. It sits there while the transaction is completed. And then it gets paid out according to the settlement instructions.
Most of the time, that process works exactly as it should. But how do you know the company handling your funds is operating properly?
For title companies that work with lenders that sell loans into the secondary market, the answer often involves something called ALTA Best Practices.
What Are ALTA Best Practices?
ALTA stands for the American Land Title Association, the national trade association for the title insurance industry. In 2012, ALTA published a set of Best Practices designed to help title companies establish and maintain high standards in seven key areas of operations.
The seven Pillars of ALTA Best Practices are:
- Escrow and Trust Accounting: Maintaining proper controls over customer funds held in escrow or trust accounts.
- Privacy and Information Security: Protecting non-public personal information from unauthorized access or disclosure.
- Title Policy Production and Delivery: Ensuring title policies are issued accurately and delivered promptly.
- Title Examination and Underwriting: Maintaining consistent, documented procedures for examining title and issuing coverage.
- Lender and Real Estate Agent Relationships: Respecting the legal requirements around inducements, referrals, and settlement services.
- Complaint Resolution: Having a documented process for receiving, tracking, and responding to customer complaints.
- Insurance and Licensing: Maintaining appropriate insurance coverage and proper licensing across all jurisdictions where the company operates.
Each Pillar comes with specific, measurable criteria. A title company that claims to follow ALTA Best Practices should be able to demonstrate that it meets those criteria through documented policies, regular audits, and ongoing training.
Why ALTA Best Practices Matter to You
You might not think about your title company's internal controls when you are buying a house. But consider what is actually happening.
You wire a very large amount of money to an account controlled by the title company. That company is responsible for holding that money securely and then disbursing it correctly to pay off your seller's mortgage, recording fees, taxes, commissions, and all the other costs associated with closing.
If the company does not have proper accounting controls, the risk of error or mismanagement goes up significantly.
ALTA Best Practices are essentially a framework designed to reduce that risk. They require the company to maintain written procedures, conduct regular reconciliations, segregate duties among employees, and undergo periodic third-party audits.
Who Requires ALTA Best Practices?
The driving force behind ALTA Best Practices has been the lending industry. Large lenders, including those that sell loans to Fannie Mae and Freddie Mac, often require their approved title companies to undergo an annual ALTA Best Practices assessment.
This means that a title company that works with major lenders has likely been examined by an independent auditor. The auditor reviews the company's policies and tests its controls against each of the seven Pillars.
If the company passes, it receives a certification or assessment letter it can share with its lending partners. That certification tells the lender: "This title company has been evaluated and meets industry-recognized standards for financial controls, information security, and operational reliability."
What ALTA Best Practices Are NOT
It is important to be clear about what ALTA Best Practices are not.
They are not federal regulations. They are not state-mandated requirements. They are not a guarantee that nothing will go wrong. And a company that has completed an ALTA Best Practices assessment is not immune to fraud, theft, or operational failure.
What they are is evidence that the company takes its obligations seriously enough to submit to a structured, independent evaluation of its processes.
How to Find Out Whether Your Title Company Follows Them
The question is perfectly reasonable to ask.
When you are interviewing title companies or choosing who to work with, you can ask:
- Does your company follow ALTA Best Practices?
- Have you completed a third-party assessment?
- Can you share your assessment letter or certification?
A title company that has invested the time and resources to implement and verify these standards should be happy to answer yes.
ALTA Best Practices and Information Security
The second Pillar, privacy and information security, has become especially important in recent years. Real estate transactions generate sensitive personal information: Social Security numbers, bank account details, wire transfer instructions, copies of identification documents.
ALTA Best Practices require title companies to maintain a written information security program, conduct risk assessments, and train employees on data protection. For consumers who are increasingly concerned about identity theft and wire fraud, knowing that a title company takes information security seriously is a meaningful consideration.
The Bottom Line
ALTA Best Practices are a set of industry-developed operational standards that help title companies manage risk, protect customer funds, and safeguard sensitive information.
They are not mandatory by law, but they have become an expectation among many lenders and an important signal of professionalism in the industry.
If a title company tells you it follows ALTA Best Practices and has undergone a third-party assessment, that is a meaningful indicator of how it approaches its responsibilities.
This article provides general educational information and is not legal or financial advice. The specific requirements of ALTA Best Practices may vary depending on the title company, its underwriters, and its lending partners.
