As a weekly reader of this sight I have noticed quite a few comments regarding why many companies are starting to require background checks for their vendors including title searchers. Today I had to inform a very loyal vendor that we could not utilize their services because they would not obtain a background check.

 

I understand that searchers may not be required to get these credentials for firms that do commercial work, or a lower volume of residential work. The industry has become a tiered industry where volume is determined by the amount of risk a vendor poses to the lender. If a settlement vendor has taken no steps toward the protection of NPI and the protection of the Consumer, then they are typically bottom tier and may be allowed to handle 10 transactions per month. If they take some action and self certify that they have adopted certain guidelines they may be considered a middle tier vendor and may be allowed up to 35 transactions per month. If a firm retains an outside accounting firm and submits to an audit such a third party ALTA Best Practices Certification, a  SSAE16, SOC 2 Type 2 Attestation Engagement and examination they Lender will consider them a low risk or Tier 1 vendor, and they will get the vast majority of the work. Our firm is one of the only Law Firms/Settlement Agents in the State of North Carolina and South Carolina which has both a Third Party ALTA Best Practices Attestation and a SOC2 AT 101 Type 2 Attest Engagement. This has helped us become a tier one Settlement Services provider for many of the Lenders. Because we handle so many files, and because we pose a greater risk to the Lenders, they require that we do full background checks on any and all of our residential title search providers and our other non attorney partners.

The logic behind this is due to the fact that over the last two years the Government has made it clear to the Lending institutions that they are solely and absolutely responsible for the actions of any third party service provider in a residential transaction. Every year we are subject to audit by our larger clients and a central component of the audit is to produce the proof of background check, e&o coverage and service level agreement. I have been practicing law for around 20 years and I have seen more changes in the industry in the last 24 months than I have in the preceding 18 years. This June when I have my third annual security audit, if I cannot produce a background report for any single vendor, I will be risking the loss of my client base which could put the future of my firm in jeopardy.

Is this fair? Do I like it? The answer is an unequivocal NO! I have had to spend an astronomical amount of money on security and compliance, and as a result my margins have dropped. However the banks are not backing off of this requirement, and you can expect to see even more of the same moving forward, regardless of who is in office or who the lender and or settlement agent may be. We have been asked to pay for these background checks by our independent searchers, which is not fair because if our firm pays for one, we pay for all and when we utilize several hundred service providers it becomes cost prohibitive.

I hope this answers the questions which have popped up lately! I did not make these rules or laws, I am just the messenger and vendor like everyone else who searches title.

 

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