12th Floor Group Title 'Super-Alliance' Battles Noncompliance

A dozen title insurance agencies, settlement service companies and law firms have aligned as a national consortium called The 12th Floor Group, with a special focus on promoting legal and regulatory compliance across all sectors of the real estate industries.

Key Takeaways

Billing themselves as a national title insurance "super-alliance," the 12th Floor Group came together to address the widely varying legal and regulatory schemes across local and state lines.
Championing industry best practices is at the core of the group's culture, but the consortium has made a point to go beyond some of the established industry standards.
While the group will not be admitting anyone from the real estate side of the transaction, its members have been traveling the country for the better part of the last year to offer education on hot regulatory topics such as TRID and RESPA.

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Billing themselves as a national title insurance “super-alliance,” the 12th Floor Group came together in response to the difficulties that arise in creating a national settlement services firm across several states. But the alliance is also intended to address the widely varying legal and regulatory schemes across local and state lines.

It’s taken about a year for the group to come together after consulting with mortgage lenders, some of the nation’s largest banks, mortgage insurance and reinsurance companies, government regulators and secondary market members.

Why the ’12th Floor Group’ moniker?

Jaime Kosofsky, partner in real estate, title, REO, loss mitigation and closing law firm Brady & Kosofsky and one of the group’s charter members, explained that the inspiration for the name struck him on an ill-fated trip to the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo, held last year in Dallas.

“The travel advisory said it was going to snow, so I got to the airport early and jumped on an earlier flight,” said Kosofsky, whose firm is located in Matthews, North Carolina. “I feel asleep on the plane while it was still sitting on the tarmac. Forty-five minutes later, they cancelled the flight, so I got off the plane and went home.

“The next morning, my operations executive and I set out again. We got stuck in Dallas because it was covered in ice. I stayed at the Westin Hotel at the Dallas airport on the 12th floor, with 12 other people who were trying to get out.”

When smart people get stranded

The persistence of those 12 people stuck on the 12th floor reminded him of the other members of the consortium, who are regarded as experts in local customs, rules and conditions in their respective markets and have distinguished themselves by maintaining cutting-edge technological and compliance measures.

Among those respected members is Marx Sterbcow, managing partner of Sterbcow Law Group in New Orleans, Louisiana and one of the nation’s top RESPA attorneys. Sterbcow has been named outside general counsel to ensure that the alliance is in compliance with RESPA and other related regulations.

Providing additional expertise on all matters related to the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosures (TRID), or Know Before You Owe, rule will be Richard Horn, the former CFPB attorney who led the TRID effort and now works in private practice. The group’s president is Stephen Papermaster, who is also president of First Title & Escrow in Rockville, Maryland.

Jaime Kosofsky

All members of the alliance must undergo an intensive, internal vetting process and audit by the group’s general counsel in order to be accepted to a one-year membership term. Candidates must be approved by a unanimous vote of the group’s members.

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“We have a one-vote disqualification policy,” Kosofsky said. “If one person says it’s a no, it’s a no.”

The 12th Floor Group differs from traditional vendor management companies in that it will not be built around a centralized operations center but rather state-focused operations centers.

Members of the consortium must have brick-and-mortar offices, live in their respective states and employ local attorneys, closing agents and title agents.

If a lender searches for a member in a specific state, members with physical offices in that state are listed as “tier 1” providers. Members who are physically located in a different state but are licensed to do business there are listed as “tier 2” providers.

“We’re not a huge, national form that is just a void,” Kosofsky said. “There is a person behind that phone. We live in that area. We know the idiosyncrasies in various countries and corridors.”

Building bonds for better business

Lenders and banks that do business with the 12th Floor Group will be able to place orders and make status inquiries through a single, cloud-based portal. The alliance has partnered with ATS Secured to provide ATS Shield, a mortgage closing process that satisfies all regulatory and compliance obligations.

ATS Shield offers a completely digital mortgage closing, vendor auditing, document storage, online payment disbursement and multilevel encryption for secure communications, data and payments. The portal works with lenders’ existing software.

Championing and adhering to industry best practices is at the core of the group’s culture, but the consortium has made a point to go beyond some of the established industry standards such as the American Land Title Association’s (ALTA) Best Practices framework and certification programs.

In addition to adopting and implementing ALTA’s Best Practices, all members must maintain an American Institute of CPA (AICPA) Service Oriented Company Certification of some level, with a Service Organization Control (SOC) type 1 certification the preferred minimum requirement.

An SOC 1 is a report on the controls at a service organization that may be relevant to user entities’ internal controls over financial reporting.

“We think the world of ALTA,” Kosofsky said. “We’re all members of ALTA. But what we’ve done here is look at the various RFPs, SOUs and the various vetting and intake documents of lenders to see what banks across the country have been asking for.

“The banks are in charge. Compliance is the watch word right now. Lenders are vetting all of their third- and fourth-party providers, even their cleaning people. We’re those annoying people who walk through your office with a camera and take photos of people’s desks and say, ‘you are not protecting your NPI.’

“We’re looking to see if these providers are going on Facebook and posting photos of Realtors holding checks because they have been named their ‘Realtor of the month’ to see if there are any potential RESPA implications.”

Raising the bar across the board

The consortium has also developed an additional set of proprietary “pillars” for its members to follow, including best-practice standards for third- and fourth-party vendor management, social media usage, Federal Financial Institutions Examination Council (FFIEC) and Office of Foreign Assets Control (OFAC) policies, REO, loss mitigation, anti-money laundering controls and mortgage fraud prevention.

So why all of the heightened standards? According to Kosofsky, thanks to a slew of mortgage lending regulations, including TRID and the CFPB’s Ability to Repay/Qualified Mortgage (ATR/QM) rules, lenders across the country are minding their p’s and q’s and adopting their own internal acceptance standards for all of their third- and fourth-party vendors.

“Lenders have been very inconsistent in their standards, and some have created their own set of pillars. Our standards contemplate all of that,” he said.

In addition to regulators, lenders are also under increasing pressure from the secondary market investors that purchase their loans, Kosofsky pointed out.

“We are listening very closely to the secondary market, Fannie Mae, Freddie Mac and the various investors,” he said. “We have seen an investor reject any loan that has a release of consumer information in it. We have seen another investor say they will not buy loans if the lender’s vendors don’t have a SOC 1 certification. We are trying to get ahead of that curve and avoid that.”

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For real estate professionals, an opportunity for education

So what does all of this mean for real estate agents and brokers?

While the 12th Floor Group will not be admitting anyone from the real estate side of the transaction to its alliance, Kosofsky said its members have been traveling the country for the better part of the last year to offer education on hot regulatory topics such as TRID, RESPA, affiliated business arrangements, marketing service agreements, lead generation and nonpersonal public information protection measures.

“Education will be a big part of what we do,” he said. “All of us are very engaged in that. We talk a lot about our collaborations with real estate brokers and the mistakes and deficiencies we see in those relationships. I think it’s going to play a very significant role in the way brokers are engaged in the industry and give them good tools to use.”

Current members of the 12th Floor Group include: