ALTA ALTA Risk Management 2 — Questions and Answers
Question 1: What is the role of an ALTA Best Practices assessment in risk management?
- It sets the premium rates for title insurance policies
- It evaluates whether a title company's operations meet established standards for financial controls, data security, and consumer protection (Correct answer)
- It replaces the requirement for errors and omissions insurance
- It certifies the title company's software systems
Correct answer: It evaluates whether a title company's operations meet established standards for financial controls, data security, and consumer protection
An ALTA Best Practices assessment evaluates a title company's operational procedures against ALTA's seven pillars to identify risk gaps and demonstrate compliance to lender partners.
Question 2: Which ALTA Best Practices pillar addresses the proper receipt, management, and disbursement of settlement funds?
- Pillar 1 – Licensing
- Pillar 2 – Escrow Trust Accounting (Correct answer)
- Pillar 4 – Settlement Procedures
- Pillar 6 – Professional Liability Insurance
Correct answer: Pillar 2 – Escrow Trust Accounting
Pillar 2 of ALTA Best Practices requires title companies to maintain proper escrow accounting controls, including reconciliation of trust accounts, to protect settlement funds.
Question 3: What is 'forgery' risk in the context of title insurance?
- Risk that the property's legal description contains errors
- Risk that a document in the chain of title, such as a deed, was signed by someone falsely claiming to be the owner (Correct answer)
- Risk that the buyer's mortgage rate is incorrect
- Risk that the property fails a building inspection
Correct answer: Risk that a document in the chain of title, such as a deed, was signed by someone falsely claiming to be the owner
Forgery risk arises when a fraudulent party creates or signs a document — such as a deed — in someone else's name, potentially clouding the chain of title.
Question 4: What does errors and omissions (E&O) insurance cover for a title company?
- Physical damage to the title plant facility
- Claims arising from professional mistakes or negligence in performing title services (Correct answer)
- Losses from natural disasters affecting insured properties
- Employee theft of escrow funds
Correct answer: Claims arising from professional mistakes or negligence in performing title services
E&O insurance covers a title company against claims resulting from professional errors or omissions in conducting title searches, issuing commitments, or other title services.
Question 5: Why is vendor management important under ALTA Best Practices?
- Because vendors always charge lower fees
- Because title companies are responsible for ensuring their vendors also handle consumer data and closing functions in compliance with applicable standards (Correct answer)
- Because vendors are required to be licensed in every state
- Because vendors must be affiliated with the title company
Correct answer: Because title companies are responsible for ensuring their vendors also handle consumer data and closing functions in compliance with applicable standards
Title companies must vet and monitor vendors who handle consumer data or settlement services to ensure those vendors comply with privacy and operational standards, as the title company retains responsibility.
Question 6: What is a 'known risk' underwriting exclusion in a title policy?
- A risk disclosed after the policy is issued
- A condition or defect that was known or disclosed to the insured before the policy issued, which the underwriter excludes from coverage (Correct answer)
- A risk that exceeds the policy amount
- A risk that is automatically covered by federal law
Correct answer: A condition or defect that was known or disclosed to the insured before the policy issued, which the underwriter excludes from coverage
Known risk exclusions prevent a title policy from covering defects or claims the insured was aware of before the policy was issued, as insuring against known problems would be against public policy.
ALTA ALTA Risk Management 2
What is the role of an ALTA Best Practices assessment in risk management?