Bulletin: SLS00171

The following situation was encountered by a Stewart Title Guaranty Company Agent in Missouri and exemplifies the importance of the Positive Pay System. As a result of the daily positive pay process, the Agent's bank identified four checks drawn on its escrow account that were not on the Agent's Positive Pay list. Because the fraudulent activity was identified by positive pay on the same day the checks were presented for payment, the Agent did not suffer a loss. The checks were four personal checks, fraudulently created, using the Agent's escrow account information.

Positive Pay is a system whereby the office/agent transmits a list of the checks that it has issued each day to the bank, and the bank matches that list with the checks that are presented on the office/agent's account for payment. Only checks, which are on one of the submitted lists, will be honored for payment. If the check is not on one of the lists, the bank will advise the office/agent and unless given authorization, the bank will not honor that check.

Although there are several variations, Reverse Positive Pay is typically a system whereby the bank, on a daily basis, forwards to the office/agent a list of all the checks that have been presented to the bank for payment. The office/agent then has a brief interval of time to either approve or object to each check. The office/agent must notify the bank in order for the daily "batch" of checks to be honored.

It is important that every issuing office maintain its escrow account with the protection afforded by either Positive Pay or Reverse Positive Pay, which adds a considerable element of safety against escrow losses. It is equally important to ensure that all escrow accounts are fully reconciled in a timely manner each month. In addition, Stewart Audit Services recommends that debit files be reviewed on a daily basis and files with old credit balances and old outstanding checks be reviewed on a monthly basis.

If you suspect an attempt to defraud or a fraud should ever be perpetrated against any Stewart Family Underwriter and/or its agents, please report the activity immediately to:

Patty Hoesl
Claims & Litigation Paralegal
Stewart Legal Services
Stewart Title Guaranty Company
1980 Post Oak Blvd., Suite 710
Houston, Texas 77056
(800) 729-1902
(713) 629-2248 FAX
Email: phoesl@stewart.com

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