Closing Protection Letter
What is a closing protection letter (CPL)? When a transaction involves financing from a lender, the lender may feel reluctant to entrust an escrow agent who is underwritten by a title insurance company with closing proceeds. Also know as an insured closing letter and originally created by the American Land Title Association (ALTA), the CPL is provided to the lender and states that the title insurance company’s agent will properly handle all money and documents provided to them by the funding lender with regard to a specific transaction. It also states that the closing agent will comply with all closing instructions provided to them by the lender. Since title insurance agents are not directly employed by the title insurance company itself lenders are leery of trusting an agent with a large amount of money out of the possibility if there was some sort of loss the agent would not be able to cover it. In the event of mishandling of funds by the agent a claim could be brought against the insurance underwriter. When written the CPL is meant to only apply to the agent and lender in question. The CPL is not assignable. Currently, customers are charged a flat fee of $75.00 for the title insurance agent to issue this letter to their participating lender. There is no way around this fee. Below is an example of a standard closing protection letter issued in the state of Pennsylvania:
Sample Closing Protection Letter
(TITLE INSURANCE COMPANY)
Name and Address of Addressee Date: ____________
Re: Closing Protection Letter
When title insurance of (Title Insurance Company) (the “Company”) is specified for your protection in connection with closings of real estate transactions in which you are to be the lessee or purchaser of an interest in land or a lender secured by a mortgage (including any other security instrument) of an interest in land, the Company, subject to the Conditions and Exclusions set forth below, hereby agrees to reimburse you for actual loss incurred by you in connection with such closings when conducted by an Issuing Agent (an agent authorized to issue title insurance for the Company) or an Approved Attorney (an attorney upon whose certification of title the Company issues title insurance) and when such loss arises out of:
- Failure of the Issuing Agent or Approved Attorney to comply with your written closing instructions to the extent that they relate to (a) the status of the title to said interest in land or the validity, enforceability and priority of the lien of said mortgage on said interest in land, including the obtaining of documents and the disbursement of funds necessary to establish such status of title or lien, or (b) the obtaining of any other document, specifically required by you, but not to the extent that said instructions require a determination of the validity, enforceability or effectiveness of such other document, or (c) the collection and payment of funds due you, or
- Fraud or dishonesty of the Issuing Agent or Approved Attorney in handling your funds or documents in connection with such closings.
If you are a lender protected under the foregoing paragraph, your borrower in connection with a loan secured by a mortgage on a one to four family dwelling shall be protected as if this letter were addressed to your borrower.
Conditions and Exclusions
- The Company will not be liable to you for loss arising out of:
- Failure of the Issuing Agent or Approved Attorney to comply with your closing instructions which require title insurance protection inconsistent with that set forth in the title insurance binder or commitment issued by the Company. Instructions which require the removal of specific exceptions to title or compliance with the requirements contained in said binder or commitment shall not be deemed to be inconsistent.
- Loss or impairment of your funds in the course of collection or while on deposit with a bank due to bank failure, insolvency or suspension, except as shall result from failure of the Issuing Agent or the Approved Attorney to comply with your written closing instructions to deposit the funds in a bank which you designated by name.
- Mechanics’ and materialmen’s liens in connection with your purchase or lease or construction loan transactions, except to the extent that protection against such liens is afforded by a title insurance binder, commitment or policy of the Company.
- If the closing is to be conducted by an Issuing Agent or Approved Attorney, a title insurance binder or commitment for the issuance of a policy of title insurance of the Company must have been received by you prior to the transmission of your final closing instructions to the Issuing Agent or Approved Attorney.
- When the Company shall have reimbursed you pursuant to this letter, it shall be subrogated to all rights and remedies which you would have had against any person or property had you not been so reimbursed. Liability of the Company for such reimbursement shall be reduced to the extent that you have knowingly and voluntarily impaired the value of such right of subrogation.
- Any liability of the Company for loss incurred by you in connection with closings of real estate transactions by an Issuing Agent or Approved Attorney shall be limited to the protection provided by this letter. However, this letter shall not affect the protection afforded by a title insurance binder, commitment or policy of the Company.
- Claims shall be made promptly to the Company at its principal office at: (Address) When the failure to give prompt notice shall prejudice the Company, then liability of the Company hereunder shall be reduced to the extent of such prejudice.
- The protection herein offered does not extend to real property transactions in the states of Florida, Iowa, New Jersey, Nebraska, Kansas, New Mexico, New York and Texas. Insured closing letters have been regulated under the laws of those states.
- Notwithstanding your instructions to the Issuing Agent or Approved Attorney, nothing herein shall be construed to impose any liability on the Company on account of any consumer credit protection, truth-in-lending, or similar law, or the provisions of the Flood Disaster Protection Act of 1973.
The protection herein offered will be effective upon receipt by the Company of your acceptance in writing, which may be made on the enclosed copy hereof and will continue until cancelled by written notice from the Company.
Any previous insured closing service letter or similar agreement is hereby cancelled except as to closings of your real estate transactions regarding which you have previously sent or within 30 days hereafter send written closing instructions to the Issuing Agent or Approved Attorney.
(TITLE INSURANCE COMPANY)
Accepted: ____________________________, 19______
(The name of a particular issuing agent or approved attorney may be inserted in lieu of reference to Issuing Agent or Approved Attorney contained in this letter and the words “Underwritten Title Company” may be inserted in lieu of Issuing Agent)
Posted on July 5, 2011, in closing, real estate settlement services, Title Insurance and tagged carbon county real estate, closing protection letter, CPL, escrow agent, financing, Homes For Sale, insured closing letter, monroe county real estate, mortgage, northampton county real estate, poconos, real estate closing, settlement services, title insurance agent, title insurance underwriter. Bookmark the permalink. 1 Comment.