A title escrow reconciliation ties the open balance on every escrow file to the money in the escrow bank account. The trial balance of open files, the escrow book balance and the reconciled bank balance must agree. Bank activity is matched daily, the three-way comparison is done at least monthly, and stale balances and shortages are investigated, not carried.
What does a title escrow reconciliation compare?
A title escrow reconciliation compares three figures at one date. The trial balance lists every open escrow file and the money it holds. The book balance is the escrow account's own record of receipts and disbursements. The reconciled bank balance is the statement balance adjusted for items not yet cleared. If the three disagree, the difference must be found.
The ALTA Best Practices framework, version 5.0, published by the American Land Title Association, defines the method in those terms. It calls it a three-way reconciliation: a comparison of the trial balance, the book balance and the reconciled bank balance, done at a regular interval such as monthly, weekly or daily. ALTA describes the same process as the way to discover shortages, charges that must be reimbursed, and errors or omissions in the escrow account. The framework is an industry standard rather than a law. ALTA says its escrow procedures help companies meet federal, state and contractual requirements for safeguarding funds, and state escrow and title rules may add their own.
Why the file level matters
An escrow account is a pool. On any day it may hold earnest money for a dozen purchases, loan funds for refinances that have not funded, and proceeds waiting for a seller's wire instructions. The bank sees one balance. The settlement office has to know, file by file, what that balance is made of. A transfer posted to the wrong file leaves the bank and book balances untouched, so only the trial balance shows it.
Daily title escrow bank matching ahead of the monthly three-way
Daily title escrow bank matching compares each day's bank activity, every incoming wire, deposit, cleared check and outgoing wire, to the entries in the escrow books, and investigates anything that does not match. It catches a missing wire or an unexpected debit while the closing is still fresh, instead of weeks later at month end.
ALTA's framework sets the daily step as a minimum: at least daily, reconcile the escrow account activity in the bank's records to the activity in the escrow books, identifying and investigating discrepancies. It allows the work to be done electronically or by hand depending on volume.
In practice, a daily match looks like this:
- Pull the prior day's bank activity report for each escrow account.
- Match each incoming wire or deposit to the file it was receipted to, by amount and reference.
- Match each cleared check to the issued check in the escrow system, by number and amount.
- Match each outgoing wire to the disbursement on the file and its verified instructions.
- List anything unmatched: a deposit nobody receipted, a debit nobody authorised, a check that cleared for a different amount.
A debit the escrow books never recorded is the most urgent item on that list. It could be a bank error, a returned deposit, or an unauthorised payment. Waiting until month end to look at it gives the money weeks to move.
Building the title escrow trial balance from open file balances
The title escrow trial balance is a list of every open escrow file and its balance at the end of the reconciliation period. Its total is one of the three figures in the reconciliation. It should include every file holding money and no file at zero, and each balance should be explained by the file's own receipts and disbursements.
ALTA's framework expects escrow accounts to be supported by detailed trial balances listing all open escrow file balances, and defines the trial balance as a list of all open individual escrow ledger balances at period end.
A worked example month
The figures below are an example for a fictional settlement office, Marlow Title, at April 30. They are illustrative only.
| Open file | Status at April 30 | Balance |
|---|---|---|
| 26-0412, purchase, Fenwick Street | Earnest money held, closing May 9 | 15,000.00 |
| 26-0398, refinance, Oak Bend | Loan funds received April 30, disbursing after the rescission period | 212,480.55 |
| 26-0377, purchase, Ridge Court | Closed April 24, recording fees held until the county invoices | 412.00 |
| 26-0350, estate sale, Hollis Lane | Seller proceeds held pending executor's instructions | 148,903.20 |
| Trial balance total | 376,795.75 |
| Bank side | Amount |
|---|---|
| Statement balance, April 30 | 562,652.50 |
| Less outstanding check 7731, payoff to prior lender on closed file 26-0361 | -184,250.00 |
| Less outstanding check 7735, buyer refund on closed file 26-0344 | -1,186.30 |
| Less outstanding wire, seller proceeds on closed file 26-0389, sent 5:10 p.m. April 30 | -420.45 |
| Reconciled bank balance | 376,795.75 |
| Book balance per escrow system | 376,795.75 |
All three figures agree. Notice that none of the outstanding items belongs to a file on the trial balance. Files 26-0361, 26-0344 and 26-0389 are already at zero, because the books recorded each disbursement when it was issued. The bank simply had not paid them by April 30. They are timing items, not file balances, and counting them in both places is a common way to make a trial balance look short.
The Hollis Lane file is an estate sale. The seller is an executor, and the proceeds will go to the estate's own account once the executor gives instructions and the court allows it. Those funds then enter a different set of records; probate accounting for an estate's receipts and payments covers what the executor must show.
Outstanding disbursements in title escrow: payoffs, recording fees and seller proceeds
Outstanding disbursements in title escrow are checks and wires recorded on a file at closing that the bank has not yet paid. They reduce the bank side of the reconciliation until they clear. Each needs a file number, payee, date and amount, and each should clear within a predictable window for its type.
Different payees clear at different speeds:
- Loan payoffs by check can take several days to reach the lender and post. Wiring a payoff instead shortens the window and the risk.
- Recording and transfer fees to the county may wait until documents are recorded, which depends on the county's queue.
- Association payments at closing, such as dues, transfer fees and statement fees to a homeowners association, often go by check. The association then has its own deposit to reconcile; HOA bank reconciliation for operating and reserve accounts shows that side.
- Seller and buyer refunds by check are the most likely to sit uncashed, because the payee has moved or lost the check.
Age the outstanding list every month. A payoff check still outstanding after a couple of weeks deserves a call to the lender, because the borrower's old loan may still be accruing interest. A refund check outstanding for months is on its way to becoming a stale balance problem.
How should a title escrow office handle stale file balances?
A title escrow office should handle stale file balances by reviewing them regularly, finding out who the money belongs to, and either disbursing it or following the state's unclaimed property process. ALTA's framework expects outstanding file balances to be documented and reviewed, and says balances older than six months need management approval of activity.
Stale balances build up from small things. A buyer's deposit for a closing that fell through and was never refunded. A recording fee estimate that exceeded the actual fee by a few dollars. An uncashed refund check that was voided back to the file. A payoff overpayment the lender returned after the file closed.
Each one looks harmless, but together they create risk. Money on a closed file is money nobody is watching, which makes it the easiest money in the account to move without detection. Work stale balances in this order:
- Read the file's history and the closing statement to see who should have received the money.
- Contact that party in writing and keep a record of the attempt.
- Disburse with management approval once the owner is confirmed.
- If the owner cannot be found within your state's dormancy period, report and remit under the unclaimed property rules.
Never move a stale balance to income, and never use one to cover a shortage on another file.
What causes a title escrow shortage, and who reviews it?
A title escrow shortage occurs when a file has paid out more than it received, or when the account holds less than the trial balance says it should. Reversed deposits, misposted wires, duplicate disbursements and wire fraud are the usual causes. ALTA expects management to review each monthly reconciliation and share it with the title insurer.
Funds that were not good
ALTA's framework asks companies to follow state good funds laws and not to take undue risk on deposits that are not fully settled or could be reversed. A check or electronic payment can post to the account and be reversed days later. If the office disbursed against it, the file is short by the reversed amount, and other files' money paid for the closing.
Errors and fraud
A duplicate payoff or a disbursement keyed to the wrong file creates a shortage on one file and a matching overage elsewhere, or a loss if the payee keeps the money. Wire fraud creates a loss outright. Reviewers also look at patterns in disbursements: many even-amount payments to the same payee, or "refunds" with no closing statement behind them. When round dollar transactions in bank data signal fraud shows how to run that test on the disbursement history.
Review and segregation
ALTA's framework says the person doing the reconciliation should not have signing or disbursing authority. It also says management should review and approve each monthly three-way reconciliation shortly after it is done, and make the results available to the company's title insurers. A shortage found in that review should be funded from the company's own money while the cause is investigated, and the file should record who approved the cover and why.
The statement layer of this work is mechanical but heavy, with many wires and checks every day. PreciseBankFlow reads escrow bank statements, confirms each one foots from opening to closing balance, matches statement lines to your escrow register to show what cleared, and lists duplicates and check number gaps as exceptions for review. File balances and the trial balance stay in your escrow system. Get started to request early access.