Three-way reconciliation for title escrow accounts

Short answer: A three-way reconciliation compares three figures at the same date: the reconciled bank balance, the escrow book balance, and the trial balance (the total of every open file’s balance). When all three agree, the money in the account matches what is owed to each file. If they do not agree, the difference must be investigated and corrected.

A three-way reconciliation proves that three independent numbers agree at the same moment: the bank’s balance, the agency’s book balance, and the sum of every individual file balance (the trial balance). When all three agree, the money in the account is exactly the money the agency owes to the people in its files.

The three numbers

1. Bank. The ending balance on the bank statement, adjusted for items in transit: outstanding checks and wires that have not cleared, and deposits that have not posted.
2. Book. The escrow account balance in the agency’s own ledger.
3. Trial balance. The total of every open file’s balance. This is the number that ties the account back to real people and real transactions.

Two-way reconciliation (book to bank) can balance while an individual file is short and another is long. The trial balance is what catches that.

What keeps a reconciliation from tying

• Outstanding checks that never clear.
• Deposits recorded in the ledger but not at the bank, or the reverse.
• Wires that left the bank but were not posted to a file.
• Files with negative balances (a disbursement larger than what was received on that file).
• Bank charges or interest posted at the bank but not in the ledger.

Each one is easiest to resolve the day it appears.

How often

ALTA Best Practices v5.0, Pillar 2, says "On at least a monthly basis, a Three-Way Reconciliation is performed," and that bank activity is reconciled to the escrow books "On at least a daily basis." See How often to reconcile and ALTA Best Practices Pillar 2.

How AER does it

For every account under daily reconciliation, AER reviews each day’s bank activity, works every unmatched item against your ledger, and notes by the next business day exactly where each one posts. Every month the AER Compliance Portal gives a three-way summary of book, bank and trial balance, plus AER’s own check of the ending bank balance against the bank statement. AER never moves, holds or disburses funds.

See escrow reconciliation services · Get a Free Snapshot

Questions

Is a three-way reconciliation required?

ALTA Best Practices v5.0 calls for one at least monthly. Underwriter agreements and state rules may also require it; check the ones that apply to you.

What if my three numbers do not agree?

Find the difference first, then the items that make it up. A free Snapshot returns a one-page read of aged outstanding items, unresolved exceptions and documentation gaps.

This page is general information, not legal advice.