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U.S. Securities and Exchange Commission’s 2021 Examination Priorities report cover

How to Manage Cybersecurity Risks in Vendor Relationships

Extend your security bubble further than your business’s front door.

Managing cybersecurity risk is an arduous task for any organization, one that becomes even more challenging when trying to extend your security to vendor relationships. However, it has never been more important. Not only are cyber threats on the rise, but the U.S. Securities and Exchange Commission (SEC) made ensuring operational resiliency and information security one of its 2021 priorities.

Thankfully, last year the agency published a report on the due diligence companies should practice when dealing with vendor relationships. Covering the monitoring of vendors, contracts, customer information policies and other issues, the guidance provides much-needed advice for these complex business partnerships. Let’s explore some of its main tips, takeaways and findings for addressing security concerns with your vendors.

Why Does Information Security and Operational Resiliency Matter?

According to the SEC’s 2021 Examination Priorities report, breaches in information security can in fact “have consequences that extend well beyond [a] firm,” adversely impacting “other market participants.” The report further explains that, due to the radical increase in remote operations in response to the COVID-19 pandemic, cybersecurity concerns have been elevated further, requiring closer scrutiny of endpoint security, data loss, remote access, use of third-party communication systems and, of course, vendor management.

Understand Your Liability

It is a common misconception that if your vendor experiences a data leak, the onus is on them. Not true. State laws typically lay responsibility at the feet of the entity that collected the customer information in the first place. They usually limit vendor requirements to informing you that a data breach or hack has occurred. To safeguard yourself and your business, ensure that your vendor contracts explicitly detail how your customers’ data needs to be handled, what to do in the event of a breach and the expected timeline for dealing with any disruptions.

Vendor Management Programs

You likely already have some experience working with vendors, as well as an understanding of how time consuming such relationships can be. Unsurprisingly, adding cybersecurity concerns into the mix creates an additional set of concerns that need to be managed. Establishing a program that addresses security concerns and expectations at the beginning of the working relationship can help. This program should cover safeguards, how to evaluate vendors, independent audits and processes for terminating and/or replacing vendors.

Understanding and Monitoring Vendor Relationships

One positive finding from the SEC is that many advisers and their personnel already demonstrate a clear understanding of privacy and cybersecurity contract terms. Furthermore, these advisers display an awareness of the risks inherent to outsourcing work to vendors and best practices for limiting such risks. One way that companies accomplish this is through continuous monitoring of vendor relationships, making sure to stay apprised of any changes in the vendor’s services or personnel.

Ongoing Work

Despite this good news, firms cannot simply assume that their data protection policies are fully up to snuff or even rest on their laurels. Instead, they must treat vendor security as an ongoing, habitual process.

As the SEC noted, designing a vendor management program is a great place to start. Then, be sure to implement it. Build security requirements into your initial vendor contracts and make them as specific as possible. Run regular security audits, using questionnaires if necessary to rigorously evaluate your vendor’s security practices. You can also demand system and organization controls (SOC) for any vendor you choose to work with, requiring them to conduct a SOC for cybersecurity audit on an annual basis. Lastly, you and your company should be performing access and security reviews daily, always staying vigilant for unusual activity.

The hard truth is that, in our digital-first world, we all must work a bit harder to stay safe online and protect the integrity of our customers’ data. But by doing so, you will have a more resilient organization and satisfied client base. 

Lost in space quote stylized lettering on abstract form in blue and purple.

Remote Online Notarization (RON) Update

The Future is Here; Let’s Embrace It

The adoption and implementation of remote online notarization (RON) received a tremendous boost during the COVID-19 pandemic. Buyers, sellers and title agents are looking to close transactions in the safest way possible. According to the American Land Title Association (ALTA), “Forty-eight states and the District of Columbia have either passed a RON law or issued an executive order pertaining to remotely notarizing documents. Some have done both.”

In December of 2020, ALTA reported that RON use had increased 547 percent during the year compared to 2019. If you are a “Star Trek” fan, the lightning-fast adoption of RON – as well as alternative remote closing methods such as Remote Ink-Signed Notarization (RIN) – has felt like the title industry has gone from cruising to warp speed in a nanosecond. It can even feel tempting to utter one of the show’s classic lines like “Beam me up, Scotty!” when thinking about such transformative change.

But let us back up a bit. As the automobile was invented and became a commonplace form of transportation, society built an accompanying infrastructure – including roads, highways, bridges and tunnels. The same is needed for RON. However, it takes time to develop secure and accessible technology that everyone can use. It requires effort to garner the acceptance of the county recorders who must be ready, willing and able to record native electronic instruments. Creating uniform laws to ensure interstate legal recognition and consumer confidence is also no easy matter.

Properly building out RON infrastructure necessitates the continuous collaboration of numerous parties, including individuals, industries and organizations. For example, MISMO, the Mortgage Industry Standards Maintenance Organization, has been working on standards concerning credential analysis, borrower identification, audio-visual requirements (including the recording of the electronic notarization process) and audit trails. PRIA, the Property Record Industry Association, has been developing national standards and best practices for the land records industry. ALTA and the Mortgage Bankers Association (MBA) have also joined forces to establish model RON legislation. Finally, there are numerous other stakeholders not identified here who have, and are, tirelessly working to enable the requisite RON infrastructure.

Currently, the federal Senate bill (SB) 3533, the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020 (otherwise known as the SECURE Notarization Act), is pending. If passed in 2021, the SECURE Notarization Act will permit RON across the nation and provide for minimum standards and interstate recognition. To track the progress of the SECURE Notarization Act, click on the link provided for SB 3533

Another good resource for tracking the evolution of RON is the DLA Piper financial services alert, which is constantly updated. You can also subscribe to their mailing list to receive alerts via email.

During this time of rapid transition, it is important to keep abreast of the latest RON developments, to “boldly go” forth and not end up like another classic science fiction show: “Lost in Space.”

The future is here; let’s embrace it!

Road sign message - Change just ahead

Digital Closing Resources in a Changing World

We break down a complicated process by describing the five main components of the Digital Closing Process.

Remote Online Notarization (RON) started making headlines several years ago but was slow to catch on because, frankly, it didn’t really seem necessary. Then, we could all gather in the closing office and sign with paper and pen, and the technology was new and a little scary. It was like a “big black box.” Few understood how the technology worked, and most approached RON as a convenience for the few people who perhaps couldn’t easily get to the closing office. Articles were written, webinars were presented, legislation moved forward piecemeal, but since RON was considered only a “nice to have” option, there was no widespread incentive to embrace it. It would be understood and adopted over time.

Well, “TIMES” HAVE CHANGED!

We are NOW in the midst of a national pandemic. States are issuing “shelter in place” orders; the federal government is urging people to stay at home; and we’re afraid of getting too close to one another lest we expose ourselves or someone else to the COVID-19 virus. The nation is at home and unable to conduct business as usual.

The real estate, title, and financial industries are a cornerstone of our economy. Our businesses are essential to our country’s entire system of trade, exchange, and consumption of resources. So how do we continue with our business without the need for physical contact? In states where we can, one way is to turn to RON, which enables us to conduct closings remotely. Consumers can go online and execute documents electronically while the closer and notary are located elsewhere.

Many states have recognized RON’s potential as a solution and enacted legislation. There is currently extensive, ongoing efforts to legalize RON across the nation through federal legislation. However, legalizing RON is not enough because RON requires the efforts of many stakeholders to be successful. We all have to work together and be “on the same page.” Do you know what happens before or after you do your part in the Digital Closing Process? 

Alliant National’s new Components of a Digital Closing series was created to give people a common understanding of both in-person electronic closings and remote digital closings facilitated by RON. We produced this series of handbooks to demystify the process – eliminate that “black box” – and provide readers with the “big picture” of how it all works. There are a lot of moving pieces and a lot of players who must come together (hence the “eCollaboration” component of the series) to create the infrastructure needed for the successful adoption and implementation of Digital Closings. Our series of handbooks shows how the Digital Closing Process works from beginning to end.

To break down a complicated process, we’ve described five main components of the Digital Closing Process in these series of articles as:

  • eSign = electronic signing or electronic signature
  • eNotary = electronic notary or electronic notarization
  • eRecording = electronic recording
  • eVault/eNote = electronic vault and electronic note (respectively)
  • eCollaboration = electronic collaboration

It all begins with eSign and expands from there. The advent of recognizing an electronic signature as legally enforceable led to electronic notarization – after all, an electronic notary (and the principals and witnesses) must be able to electronically sign documents. Then, that electronically executed and notarized digital deed, mortgage or deed of trust must be recorded in the public records, so electronic recording (or the acceptance of “papering out” as discussed in the article on eRecording) must be available, or all is for naught! And what about the electronic note? Well, there is a system set up to facilitate the creation, transfer and sale of eNotes through the use of an electronic vault.

Within each article, we explain what the component is or does; we discuss its history or describe its legal evolution; we provide links to other articles or resources on the subject; and we provide a technological overview.

The current health crisis presents many challenges for our industry, but it also represents a unique opportunity to implement technologies that will ultimately make the real estate transaction safer and more efficient than it has been in the past.

It is our hope that you will find Alliant National’s Components of a Digital Closing series be a comprehensive, ready reference as the industry transitions toward the digital closing environment.

View the series

components of digital closing

Your guide to the Digital Closing Process is here

Interest in digital closings is surging, and Alliant National is committed to making sure you stay ahead of the curve.

Today, we’re releasing to our agents a new series of handbooks exploring the elements and principles of digital closings.

Extensively researched and content-rich, Alliant National’s Components of a Digital Closing series demystifies the Digital Closing Process and its five major components: eSign, eNotary, eNote/eVault, eRecording and eCollaboration. Each handbook in this series explores one component. The purpose of the component is briefly described and placed within the context of the broader Digital Closing Process. Laws, regulations, technological requirements and specific technologies are discussed where appropriate.

This collection is designed to be a comprehensive, ready reference as the industry transitions toward the digital closing environment.

Cyber securiy if something doesn't smell right

If Something Doesn’t Smell Right, It’s Probably Not

It may seem like “Title Insurance 101” – but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.

It may seem like “Title Insurance 101” – but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.

Not everyone knows everything all of the time; a thousand items have to fall into place and “add up” in order to make the process smooth and completely unencumbered.

Download Our Fraud Detection Guide for Agents

A power of attorney showing up in the middle of a transaction (or at the end) should be scrutinized. So should cashier’s checks drawn from geographical areas that don’t coincide with the seller’s, buyer’s or property’s locale.

Take a look at the potential red flags below; being aware is half the battle.

Preliminary Title Report/Title Search

Red flags” involving the preliminary title report and title search may include:

  • Ordered by, prepared for, or mailed to a party other than the lender.
  • Property seller is not in title (possible purchase disguised as a refinance or improper property flip).
  • Seller owned property for a short time with a cash-out on the sale.
  • Notice of default is recorded (possible cash-out purchase with a straw buyer or foreclosure rescue).
  • Report indicates delinquent property taxes.
  • Report indicates modification agreement on existing loan(s).
  • Title documents show the borrower or Seller on a purchase is not the owner of record.
    • For a purchase transaction, the seller should be the owner of record.
    • For a refinance transaction, the borrower on the loan application should match the owner of record on the title documents.

Escrow/Closing Instructions

“Red flags” involving escrow and closing instructions may include:

  • “Fill in the blank” or generic escrow instructions.
  • Change of sales prices to “fit” the appraisal.
  • Odd amounts paid as a deposit/down payment.
  • Significant or unusual buyer credits or fees.
  • Unusual amendments to the original transaction.
  • Seller on Closing Disclosure different than seller on preliminary title report.
  • Evidence of “white-outs” or alterations without initials.
  • Payoffs to third parties whose lien was not listed on the preliminary title report.
  • Reference to another escrow.
  • Down payment is paid into escrow upon opening.
  • Cash is paid outside of escrow to property seller.
  • Sale is “subject to” property seller acquiring title.
  • Entity acting as the property seller is controlled by, affiliated with, or related to the applicant or another party to the transaction.
  • Buyer is required to use a specific broker/lender.
  • Sale of subject property is not subject to inspection.
  • Power of attorney used with no explanation.
  • Power of attorney is not properly documented/recorded.

Funds to Close

“Red flags” involving funds to close may include:

  • Remitter on cashier’s check or source of the wire is not the borrower.
  • Cashier’s check issued from a bank that is inconsistent with the depository information on application.
  • Cashier’s check issued from a bank branch that is out of the buyer’s geographic area.
  • Dollar amount is incorrectly encoded on check.
  • Sources of funds are questionable

Closing Disclosure/Settlement Statement

“Red flags” involving the closing disclosure or settlement statement may include:

  • Names and addresses of property seller and buyer vary from other loan documentation.
  • Seller’s mailing address is the same as another party to the transaction.
  • Excessive real estate agent commissions paid.
  • Real estate commission paid, but no realtors listed on the purchase contract.
  • Sales price differs from sales contract.
  • Reference is made to undisclosed secondary financing or double escrow.
  • Rent prorated on owner-occupied transactions.
  • Zero amount due to/from buyer.
  • Closing Disclosure or escrow instructions contain unusual credits, disbursements, related parties, delinquent loans paid off, or multiple mortgages paid off.
  • Payoffs for items not consistent with liens listed on title commitment.
  • Excessive seller paid marketing, administrative, assignment or trust fees.
  • Payouts to unknown parties.
  • Terms of the closed mortgage differ from the terms approved by the underwriter.
  • Date of settlement is delayed without explanation.

Download Our Fraud Detection Guide for Agents

This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.

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