What You Need To Know About Closing Protection Letters (Final)

1. PRESENTED BY
Closing Protection Letters and
Title Insurance Coverage

2. 1.CATIC’S POLICY OF TITLE
INSURANCE (THE ―POLICY‖), AND
2.CATIC’SCLOSING PROTECTION
LETTER (―CPL‖) WHICH IS
SOMETIMES CALLED AN INSURED
CLOSING LETTER (―ICL‖)
You may not realize that CATIC’s
insuredsare protected by two sources of
recovery:

3. Coverage under the title insurance policy
relates to the quality of the borrower’s
title tothe real estate collateral offered to
guarantee repayment of the mortgage loan.
The title
insurance policy
provides that the
insured lender’s
mortgage is:
a valid
instrument
recorded in
the correct
lien priority.

4. Coverage under the closing protection letter
relates to the quality of the lender’s security
interest in the real estate collateral offered to
guarantee repayment of the mortgage loan.
The closing
protection letter
provides
recovery in the
event that a
closing
attorney’s error
or fraud results
from:
mishandling
of documents
mishandling
of funds.

5. Failure to
record/file
Discharges
needed clear
record title.
Improper
execution of
instruments or
documents.
Failure to
address
mechanics
liens.
Survey
matters, such as
encroachments.
Title insurance covers unresolved title
defects and survey matters:

6. Examples of matters covered by title
insurance –Faulty document
execution and homestead issues.
The closing
attorney’s failure to
obtain the signatures
of both borrowers
when more than one
person holds title can
impair the lender’s
mortgage interest.
The closing
attorney’s failure to
subordinate a
Homestead
Declaration for a
spouse when only
one spouse is the sole
owner and borrower,
can impair the
lender’s ability to
retake the collateral
in the event of a
default.

7. Outstanding mortgages, equity lines of
credit, or creditors’ liens are also covered
by title insurance.
The failure to
record
Discharges for
mortgages, equ
ity lines of
credit, or
secured
creditors’ liens
impairs the
lender’s lien
position.

8. In many instances, title insurance
may provide coverage for perfected
mechanics liens.
Mechanics
liens that are
missed or not
properly
released may
impair the
lender’s
priority
position and
result in a
title claim.

9. A final example of matters covered
by title insurance –encroachments.
Survey matters
such as
encroachments
of existing
improvements
onto abutting
property may be
covered by title
insurance—even
though the
encroachment
does not appear
in the records of
the Registry of
Deeds.

10. Failure to follow
the lender’s
written closing
instructions
Mishandling of
documents,
resulting in the
lender’s security
or priority
position
Misuse or theft
of loan funds
Failure to remit a
final title
insurance policy
A closing protection letter covers the
mishandling of documents or funds:

11. CPL claims may arise from the
closing attorney’s failure to follow
written closing instructions.
Closing attorneys
cannotrely on oral
instructions, and
mustadvise the
lender when
closing
instructions
conflict with HUD
Regulations or
local Title
Standards.

12. CPL claims also arise from the
lender’s loss of its security interest
or priority position.
CPL claims typically
arise when a closing
attorney:
Delays the mortgage
recording;
Fails to record a
mortgage;
Records mortgages in
the wrong order;
Records a mortgage in
the Registry of Deeds
that should be filed with
the Registry District of
the Land Court or vice
versa; and/or
Records a mortgage
after a borrower has
filed a Bankruptcy
petition.

13. Unrecorded mortgages cause a loss
of security interest in real estate
that is both CPL anda title claim.
If not detected
and corrected
promptly, the
failure to record
a mortgage can
give rise to a
claim under the
title insurance
policy andthe
CPL, resulting in
double recovery
to the lender.

14. Defalcation -misuse of mortgage
funds or failure to remit premium.
―Forgetting‖
to remit title
insurance
premium
collected at
closing, or
disbursing
mortgage
funds
improperly, is
considered
defalcation.

15. Even accidental misuse of
funds is a CPL claim.
Misuse of
funds
includes: not
disbursing
funds in
accordance
with the HUD
Settlement
Statement;
―shorting‖
mortgage
payoff
amounts; and
failing to pay
off
mortgages.

16. The CPL is
altered or
used for more
than one
transaction.
Title
insurance
premium is
not collected
at closing.
The title
insurer is not
identified on
the HUD.
The CPL,
Policy
Commitment,
and final
policy are not
issued through
the same title
insurer.
But CPL coverage is destroyed if:

17. Failure to remit a final title insurance
policy is a basis for claim. Failure to remit
premium is a basis for Bar discipline.
Failing to remit a
final title
insurance policy
(and premium)
may ruin
coverage.
Without CPL
coverage, the
lender may look
to the closing
attorney for
recovery in the
event of a claim.

18. What our best agents and
underwriters recommend:
Preserve your
client’s CPL
coverage.
Protect title
coverage.
Safeguard
client funds.
Demonstrate
your
expertise.

19. 1.OBTAIN A CLOSING PROTECTION LETTER
FOR EACH TRANSACTION.
2.NEVER ALTER OR REUSE A CLOSING
PROTECTION LETTER .
3.NAME CATIC ON THE CLOSING
PROTECTION LETTER , POLICY
COMMITMENT, LINE 1108 ON THE HUD,
AND FINAL TITLE INSURANCE POLICY.
Preserve your client’s CPL
coverage:

20. 1.E X A M I N E T I T L E S F O R N O L E S S T H A N 5 0 Y E A R S F O R
P U R C H A S E-M O N E Y M O R T G A G E C L O S I N G S .
2.E X A M I N E T I T L E S F O R N O L E S S T H A N 2 0 Y E A R S F O R
R E F I N A N C E T R A N S A C T I O N S .
3.E X A M I N E P R O B A T E A N D B A N K R U P T C Y R E C O R D S
B E F O R E I S S U I N G Y O U R P O L I C Y C O M M I T M E N T .
4.I S S U E P O L I C Y C O M M I T M E N T S O N L Y A F T E R
R E V I E W I N G A C O M P L E T E D T I T L E E X A M I N A T I O N .
5.A M E N D P O L I C Y C O M M I T M E N T S P R O M P T L Y I F Y O U
D I S C O V E R N E W I N F O R M A T I O N .
Protect title coverage.

21. 1.BALANCE YOUR HUD -1 SETTLEMENT
STATEMENTS PRIOR TO CLOSING.
2.RECORD MORTGAGES PROMPTLY AND
ONLY AFTER CONFIRMING RECEIPT OF
FUNDS IN YOUR IOLTA ACCOUNT.
3.DISBURSE FUNDS (INCLUDING TITLE
INSURANCE PREMIUMS) IMMEDIATELY
AFTER RECORDING.
Safeguard client funds.

22. 1.ISSUE THE CERTIFICATION OF TITLE AS
REQUIRED UNDER G.L.C. 93, §70.
2.SUBMIT CLOSING PACKAGES WITH ORIGINAL
FINAL TITLE INSURANCE POLICIES
PROMPTLY AFTER CLOSING.
3.RECONCILE YOUR CONVEYANCING ACCOUNT
ACCORDING TO IOLTA RULES.
Demonstrate your expertise.

23. Your success is our business.