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  • Mary Anne Harris

How Three-Way Reconciliation Helps Every Aspect of your Business

Most state insurance regulators, bar associations and title insurance underwriters require three-way reconciliation of escrow accounts and lawyer trust accounts related to real estate transactions.

In employing three-way reconciliation, it’s important to remember what you are trying to accomplish with this highly effective tool to make sure you are addressing all the issues in the process.

Protecting the client

The most important goal of three-way reconciliation is the protection of your clients’ funds. Providing escrow services in a real estate transaction is the most critical function for protecting the interests of everyone in the transaction, including the seller, homebuyer, lender and independent service providers. Everyone in the transaction is putting their trust in the escrow agent to protect and properly disburse funds. Three-way reconciliation is the most proven method of monitoring and correcting any issues with your client accounts.

There is also another angle to this protection. A client account is not subject to legal actions or judgments against a title company or an attorney who is managing the account. If for any reason those entities are sued, the money in escrow accounts or trust accounts are off limits and cannot be a target for recovery in the lawsuit. Three-way reconciliation catches errors should client funds inadvertently be funneled into business accounts, or worse, be accessed illegally.

Protecting your company

Failing to engage in three-way reconciliation can open your company to tremendous liability if funds are improperly disbursed, diverted to incorrect accounts, or fraudulently accessed by internal actors.

The procedure, carried out correctly and consistently, can identify errors and allow you to quickly investigate and correct any issues. Often, these issues are benign, for instance you may be missing data for an uncleared transaction, or a payment may have been recorded, but the funds were inadvertently put into the wrong account. These are precisely the types of situations that are revealed – and easily corrected – in a three-way reconciliation.

Three-way reconciliation also can thwart theft or embezzlement since you are constantly “watching” the funds from all angles.

Underwriter audits

One of the most useful outcomes of regular three-way reconciliation is the ease with which you are able to prepare for an audit. Three-way reconciliation reports keep you constantly aware of any discrepancies that can then be quickly resolved, paving the way for a more seamless audit.

Regulatory requirements

And finally, three-way reconciliations are not just good business, they are one very important aspect of a title company or attorney’s legal requirements. Each state has its own rules and regulations around escrow and trust accounting procedures, so make sure you are fully in compliance with your state’s requirements.

Segregating duties

The American Land Title Association has recently updated its requirements when it comes to managing escrow accounts and has detailed the importance of reconciliations being reviewed and signed off by management or a supervisor. ALTA has also emphasized the importance of three-way reconciliations being prepared independently by someone not associated with the receipt and disbursement function.

This is where Positively Balanced can help! In addition to offering the most updated and secure procedures to meet all of your requirements, we offer the assurance of independent oversight of your accounts to add further protections for your clients and company. Call us today to learn more!



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