CPL’s – What Are They? What Coverage Does a Closing Protection Letter Offer?

When your title agent agrees to help you close a home, they often send you an insured closing letter to confirm. This makes sense since your title insurance policy does not take effect until closing day when the funds are paid. In the meantime, a Closing Protection Letter is issued to free lenders from liability for errors on the title insurance agent’s or real estate/settlement attorney’s end.

Closing Protection Letters free lenders from liability due to a closing agent’s negligence. After a title company agrees to insure a loan title policy, a Closing Protection Letter is sent to confirm this action and offer preliminary coverage and protection for the specific real estate transaction In the past, Closing Protection Letters grew into a common method for protect lenders against fraudulent actions and have been requested by lenders since the 1960s.

The purpose of a Closing Protection Letter is to offer temporary protection against unauthorized actions by the title or settlement agent or attorney. This protection can be seen as somewhat of a partnership contract between the title agent and lender that helps protect the lender against liability for errors caused by this person’s noncompliance with the lender’s requests..

CPLs cover escrow activities and services performed by a settlement agent or attorney.

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What is a CPL (Coverage Protection Letter)?

A Closing Protection Letter or CPL is offered before closing to protect lenders against unauthorized actions by settlement agents or failure to comply with the terms of the lender’s closing instructions. A CPL frees the lender from liability caused by fraud on the closing agent’s part, error, or negligence in complying with the terms of a real estate transaction. This means that the title insurance company or closing agent has agreed to cover the cost of misappropriated funds.

What coverage do CPLs offer for lenders?

CPLs are issued to cover escrow activities or services performed by an attorney or settlement agent. Such persons are typically contracted by a title insurance company rather than employed directly. The CPL then indemnifies the lender against losses or errors resulting from the closing agent’s issues.

The letter states that the underwriter for the title agent will resolve any title-related issues related to the settlement that has a direct effect on the validity of the loan or causes a lien against the value of the property being used for as collateral for the loan. After the letter is received, the lender then provides the title agent or underwriter with instructions and documents that need to be signed by the borrower. The cost of the Coverage Protection Letter is added to the cost of the lender’s title insurance policy and is traditionally paid by the borrower.

The American Land and Title Association (ALTA) currently offers three separate of CPLS depending on the type of real estate transaction.

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SOURCES:

What is a Closing Protection Letter for Title Insurance?

Closing Protection Letters: Questions Asked by Title Agents