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One of the most mis-understood protections offered to your clients at and before the closing is that coverage known as Closing Protection Coverage. It is a State requirement that Title Insurers, through their approved agents, notify the parties to a transaction (Lender, Buyer and Seller) of the availability of Closing Protection Coverage for those closings that involve the issuance of a Title Insurance Product.
Closing Protection Coverage
Questions and Answers For Your Clients
What is Closing Protection Coverage?
It is an indemnity contract protecting the addressee of the contract, against two potential losses arising from the Title Insurer’s approved agent’s failure to 1) properly handle the “funds” in a real estate closing and 2) properly comply with written closing instructions from the addressee to the title agent.
Why is Closing Protection Coverage Necessary?
A Title Agent traditionally performs two separate tasks associated with a residential property transfer. The first is that of a Title Insurance Policy Issuing Agent. The Title Agent researches the public records of the property and offers to insure the parties involved against loss, claim or damage arising from matters covered under the Title Insurer’s Policies of Title Insurance. Whether covering a Lender, a Buyer or a Seller, these policies assure the insured that their respective interests are protected against unforeseen and unknown defects in the property’s title that could adversely affect their respective interests.
The second traditional role played by the Title Agent is that of an Escrow Disbursing Agent. Since the transaction requires monies to trade hands, and since the title search requires payments of items such as taxes, mortgages and liens to be satisfied prior to the Title Agent issuing its Title Insurance Policies, the Title Agent assumes the role of collecting and disbursing the closing funds.
In these two very distinct roles played by the Title Agent, errors can happen. These errors can affect the parties’ interests in the title to the property or not. These errors can be strictly monetary in nature and not affect the parties’ interest in the property. Since the Title Insurance Policies issued only defend and protect against defects in the various ownership interests’ insured, certain “closing” errors may not be covered by the Title Insurance Policies the clients receive. This is why Closing Protection Coverage exists and is offered. It covers the range of potential errors arising from real estate closings that traditional Title Insurance Policies do not cover.
What is Closing Protection Coverage?
It is an indemnity contract protecting the addressee of the contract, against two potential losses arising from the Title Insurer’s approved agent’s failure to 1) properly handle the “funds” in a real estate closing and 2) properly comply with written closing instructions from the addressee to the title agent.
Why is Closing Protection Coverage Necessary?
A Title Agent traditionally performs two separate tasks associated with a residential property transfer. The first is that of a Title Insurance Policy Issuing Agent. The Title Agent researches the public records of the property and offers to insure the parties involved against loss, claim or damage arising from matters covered under the Title Insurer’s Policies of Title Insurance. Whether covering a Lender, a Buyer or a Seller, these policies assure the insured that their respective interests are protected against unforeseen and unknown defects in the property’s title that could adversely affect their respective interests.
The second traditional role played by the Title Agent is that of an Escrow Disbursing Agent. Since the transaction requires monies to trade hands, and since the title search requires payments of items such as taxes, mortgages and liens to be satisfied prior to the Title Agent issuing its Title Insurance Policies, the Title Agent assumes the role of collecting and disbursing the closing funds.
In these two very distinct roles played by the Title Agent, errors can happen. These errors can affect the parties’ interests in the title to the property or not. These errors can be strictly monetary in nature and not affect the parties’ interest in the property. Since the Title Insurance Policies issued only defend and protect against defects in the various ownership interests’ insured, certain “closing” errors may not be covered by the Title Insurance Policies the clients receive. This is why Closing Protection Coverage exists and is offered. It covers the range of potential errors arising from real estate closings that traditional Title Insurance Policies do not cover.
How Much Does Closing Protection Coverage Cost?
First and most importantly, Closing Protection Coverage is ONLY available if a Policy of Title Insurance is being issued in connection with the closing. If one or more Policies of Title Insurance are being issued, the following are the costs to the clients:
Cash Transactions:
Buyer: $40.00
Seller: $55.00
Financed Transactions:
Lender: $40.00
Buyer: $20.00
Buyer: $20.00
How Do I Discuss Closing Protection Coverage with my Clients?
To the general public this seems quite bizarre. It is difficult t0 have the discussion with your clients regarding the potential loss or theft of monies or closing mistakes. They look to you to provide them with professionals in all areas of their home buying and selling experience and now you are discussing the possibility, however remote, of theft, fraud, dishonesty and incompetence.
Have a frank discussion with them and let them know your role and advice is to make sure they have all the information they can have to make their own informed decision. Tell them that while relatively few buyers or sellers purchase the coverage, all Lenders require the protection, and at the nominal price involved, it is something to consider.
I maybe unusual, but I want your clients to purchase this coverage. I DO NOT make any money from selling this coverage. I DO believe in the protections provided by the coverage and by, of course, title insurance in general.
What Should We Do If The Clients Want Closing Protection Coverage?
If you know before the closing, advise your Title Agent that your client would like the Closing Protection Coverage and then the fee for the coverage can be charged on the closing statement just like the other expenses. You will also require the Title Agent to send to you and your client the Closing Protection Coverage Letter, listing your client as the Addressee insured. You should also make sure the transaction involves the issuance of a Title Insurance Policy to either the Buyer, Seller or Lender.
If your client decides to purchase the coverage when you are physically at the closing, then require the following:
Make a separate check payable for the fee to the Title Agent’s Insurer (NOT the local Title Agent)
Obtain from the Title Agent while at closing, the Closing Protection Coverage Letter from their office. It takes just a few minutes to generate and can be emailed to you and your clients while you are at the closing.
I have attached a “SAMPLE” Closing Protection Coverage Letter for reference.
What Are Some Examples Where Having Closing Protection Coverage Would Protect My Clients?
Whenever the discussion of Closing Protection Coverage comes up amongst Title Agents, it generally centers around the protections afforded the Lender. This is because the Lender always requires the coverage and few buyers and sellers request the protection. Most case law involved in the defense or use of Closing Protection Coverage, involves Lending Institutions, but the ordinary consumers have the same right to the protections Lenders require.
Think of an instance where you’ve had a closing and there was some type of closing error involving the numbers. How many times have you’ve had to request multiple closing statements because this or that item was not addressed. With all the communication and data entry input that goes into peoples’ names, addresses, loan amounts, purchase prices, commissions, tax prorations, payoff calculations, legal descriptions, points, closing costs, government fees, warranties, inspections and repairs, it isn’t hard to envision a simple mistake or a big one. That mistake may not be something that affects the parties’ legal ownership interest and therefore not covered under the Title Insurance Policy. Closing Protection Coverage can give the client the peace of mind that a National Title Insurance Company, with significant financial resources, will stand behind the mistake and not just the local Title Agent.
One of the operative conditions of the coverages afforded under the Closing Protection Coverage, is that the Title Agent must have received and accepted “closing instructions” from the Addressee. Now Lenders provide Title Agents very specific and detailed closing instructions on every transaction. So do your Buyers and Sellers. The Purchase Contract acts as the closing instructions to the Title Agent from the Buyer and Seller. In their duties as Escrow Disbursing Agent, the Title Agent reviews the Purchase Contract and attempts to comply with the terms and conditions set forth between the parties in the Purchase Contract. What happens if the Title Agent makes a mistake? What happens if the vesting of the new deed is not what the Purchase Contract called for? What happens if the Title Agent doesn’t prorate taxes properly pursuant to the Purchase Contract? What happens if the Title Agent doesn’t collect the correct amount to pay in full the seller’s mortgage? What happens if the Title Agent fails to transfer an adjacent lot that was supposed to be part of the deal? The ownership of the property isn’t necessarily in question, but a closing error has caused a loss to somebody.
Summary:
Try not to fall into the trap of “you don’t need this”. Don’t say, “if the title company had done their job you wouldn’t need this”. Don’t say, “You are just giving more money to someone who if he is going to steal your money, he is going to steal that too”. Saying and thinking this means we haven’t done a good enough job of educating real estate professionals on the very valuable resources and protections offered by Land Title Professionals and our Industry. The protection is there for a reason. It is mandated by Statute that the consumer is informed of and either accepts or rejects the coverage for a reason. It’s because it is important.