Every day, lenders ask to be provided with a Closing Protection Letter (CPL). What is it and why do they want one?
A Closing Protection Letter is added protection for the Insured Party (usually the lender/buyer) against actual loss of funds incurred within a specific transaction due to misconduct by the closing agent. The CPL explains the requirements for qualifying, the conditions that must be met, and what situations are excluded from coverage.
Historically, the protection liability fell to the closing agent, but if a title company went out of business or became corrupt, the parties to the transaction wanted additional protection for their funds. They wanted the same type of financial backing that a title policy provides. Thus, the creation of the Closing Protection Letter. With all the changes in the law from the Dodd-Frank Act, the lender may now be considered directly liable for the acts of a closing agent (See 12 U.S.C. §§ 5514). Because of this, CPLs are standard for most transactions involving a lender.*
Although each Underwriter’s terms may vary slightly, on a typical CPL, the Underwriter agrees to reimburse the Insured Party when…
The closing agent fails to follow the written closing instructions provided by the parties.
The closing agent fails to disburse the transaction funds in accordance with the parties’ written
HERE ARE SOME OTHER TIPS TO KEEP IN MIND:
Coverage on a CPL is usually dependent upon a title insurance policy being issued.
CPLs are transaction specific.
There is a charge for a CPL. Each Underwriter sets their own fees.
There is no additional charge for amending/updating an existing CPL.
There is no additional charge for changes in Lender.
If the transaction cancels, there is no charge for the CPL.
*Sometimes, the Lender will accept the E&O certificate in lieu of a CPL. Since there is a charge for the Lender’s CPL, it may be beneficial to ask if the E&O Insurance Certificate can qualify as a substitute.
Have more CPL questions?! Contact us for all your escrow and title needs!
Pioneer Title Agency is a full service company with an operating philosophy of "Commitment to Service." The company provides title insurance, escrow, account servicing, trustee sales, as well as builder related trust services through more than 70 offices in Arizona.