March 2009 Vol. 2, No. 3
 

EDITOR'S NOTE: These procedures are outdated. See current information.

Underwriters' Bulletin

Procedural Updates

Closing Protection Letters

I. THE CLOSING PROTECTION LETTER FORM

A Closing Protection Letter (CPL) is a form of insurance issued by title insurance companies, insuring the actions of a particular attorney, agent, and/or closer (collectively, authorized closer) in conducting a closing. This insurance is offered primarily to lenders, but can also be requested by buyers. The CPL coverage is separate from the coverage of the title insurance policy. The following is an explanation of the CPL coverage.

ATG issues CPLs using the 2006 form promulgated by the American Land Title Association. The CPL takes the form of a letter and its text is written in an explanatory fashion to the person or entity it addressees and insures (addressee). The CPL appears on ATG letterhead and contains a heading indicating the name and address of the addressee who is to receive its coverage. The subject line of the letter further identifies the transaction and limits the coverage, using a commitment number, loan number, and the buyers' names.

A. Introductory Paragraph

The introductory paragraph of the CPL indicates that ATG is issuing it only when certain requirements are in place, as follows:

  1. ATG is also writing a title insurance policy for the addressee on the same transaction.

    2.  

  2.  
  3.  
  4. The CPL is insuring the closing of an Illinois, Wisconsin, Indiana, or Iowa real estate transaction.

    5.  

  5.  
  6.  
  7. The addressee is a purchaser or lessee of the land, or a lender with a mortgage on the land, its assignees or warehouse lender.

The paragraph then goes on to explain that, subject to the Conditions and Exclusions contained in the letter, ATG will reimburse the addressee for actual loss caused by the member attorney or authorized closer in conducting the closing, when the loss arises out of the conduct described in paragraphs one or two of the CPL. Thus, the CPL identifies exactly whose actions in conducting the closing are insured.

B. Paragraph 1

Paragraph 1 identifies covered risks arising from the authorized closer's failure to follow the addressee's closing instructions. The covered risks including the following:
 

  1. Failure of the member attorney or authorized closer to follow the addressee's closing instructions to the extent that they relate to the status of the title or the validity, enforceability, and priority of the lien of the mortgage, including the obtaining of documents and the disbursement of funds necessary to establish such status of title or lien.

    2.  

  2.  
  3.  
  4. Failure of the member attorney or authorized closer to follow the addressee's closing instructions requiring the member or closer to obtain any other specifically required document, but only to the extent the failure affects the status of the title or the validity, enforceability and priority of the lien of the mortgage.

C. Paragraph 2

Paragraph 2 insures against the member attorney's or authorized closer's fraud, dishonesty or negligence in handling the addressee's funds or documents to the extent such fraud, dishonesty or negligence relates to the status of the title or to the validity, enforceability, and priority of the lien of the mortgage.

D. Coverage for Lender's Borrower, Assignee or Warehouse Lender

The next paragraph following Paragraph 2 explains that if the addressee is a lender, then the lender's borrower, assignee or warehouse lender also receives the CPLs coverage.

E. Conditions and Exclusions

There are a number of Conditions and Exclusions to the CPL coverage, as follows:
 

1. Paragraph 1

ATG is not liable for the following types of losses:
 

  1. The member's or closer's failure to follow closing instructions that require title insurance protection inconsistent with that contained in the ATG commitment for the transaction. However, instructions requiring specific exceptions to be removed or compliance with the commitment's requirements are not considered inconsistent.

    2.  

  2.  
  3.  
  4. Funds lost due to bank failure, insolvency or suspension, unless the loss results from the member's or closer's failure to comply with the addressee's written closing instructions to deposit the funds in a specific bank.

    5.  

  5.  
  6.  
  7. Mechanics' liens, except to the extent that the ATG commitment or policy provides such coverage.

    8.  

  8.  
  9.  
  10. The member's or closer's failure to comply with written closing instructions to the extent such instructions require a determination by the member or closer of the validity, enforceability or effectiveness of any document contemplated under insuring paragraph 1(b).

    11.  

  11.  
  12.  
  13. Fraud, dishonesty or negligence by the addressee's employee, agent, attorney or broker.

    14.  

  14.  
  15.  
  16. The addressee's settlement or release of any claim without the written consent of ATG.

    17.  

  17.  
  18.  
  19. Any matters created, suffered, assumed or agreed to by, or known to, the addressee.

2. Paragraph 2

Paragraph B of the Condition and Exclusions provides ATG with subrogation rights once ATG has reimbursed the addressee under the CPLs coverage. If the addressee knowingly and voluntarily impairs ATG's subrogation rights, then ATG's liability for reimbursement is reduced to the same extent.

3. Paragraph 3

ATG's liability for the addressee's losses out of the closing conducted by the authorized closer are limited to the coverage of the CPL and the title insurance commitment and policy.

4. Paragraph 4

Paragraph D explains where to make a claim and that if the addressee's delay in notifying ATG of a claim prejudices ATG, then ATG's liability under the CPL is reduced to the same extent.

5. Paragraph 5

The CPL covers closings of only Illinois, Wisconsin, Indiana, or Iowa real estate transactions.
 

 

F. Final Matters

The CPL is effective until canceled by written notice from ATG. Further, the CPL form cancels any prior CPLs except if the addressee has already sent the authorized closer written closing instructions, or does so within 30 days.

II. ATG's CPL PACKET

Together with the CPL, ATG sends out two additional letters. The first is a letter of good standing, confirming that the member attorney covered by the CPL is a member attorney in good standing with ATG.

The second letter is the wire instructions for the transaction. This letter is appropriate only where an ATG staff or independent closer is the authorized closer under the CPL. If a member closer is the authorized closer under the CPL, then the member closer should provide appropriate wire instructions to the lender.

III. ISSUING GUIDELINES FOR CPLs

The following are ATG's guidelines and procedures for issuing CPLs. Whenever you have a transaction where an ATG CPL is issued, note that fact in your title file, and, if appropriate, in the notes section of REsource.

A. Premium

ATG does not charge a premium to issue a CPL because it is considered incidental coverage to that already provided and charged for on the commitment and final policy. If ATG is not going to issue a title policy to the party requesting the CPL coverage, then ATG cannot issue a CPL.

B. Authorized Closer

If you are an ATG member whose status is "active," and you use REsource to prepare commitments and policies, then you can print and issue your own CPLs for lenders you write title policies for. The CPL will print the authorized closer's name as the name and address of the ATG member who holds the shares of stock in ATG.
 

 

  • Active members are authorized to issue CPLs only in the ATG member's name, and only for closings at the ATG member's address, or at an ATG office address. Any other types of CPL requests must be handled by ATG staff.

To request any type of CPL other than the single transaction CPL with an active ATG member as authorized closer, go towww.atgf.com, login as an ATG member (see "Need Your Username and Password" for your login information), click "Order a Closing Protection Letter" underATG Member Attorneys, and complete and submit the form. The ATG Champaign office's Clerical staff can also provide members with CPLs for other types of situations. They can be reached at 800.252.0402, ext. 2101, or by fax at 217.403.7401.

The following is a list of the other types of CPLs ATG can issue:
 

1. Where the Authorized Closer is an Entity Owned by the ATG Member
Many members have established limited liability companies (LLC) or corporations or other types of entities (entity) to conduct their title business. If the individual attorney owns the shares of ATG stock, and the entity does not, then the entity does not have an agency relationship with ATG. This is not a problem when issuing title insurance commitments or policies because, although the staff of the entity prepares the commitments and policies, the ATG member signs them as the authorized agent of ATG. Thus, the liability for commitment and policy preparation stays with the ATG member.

In contrast, the CPL is not signed by the ATG member. Rather, it contains an image of an ATG staff attorney's signature because lenders want to see that the CPL was signed by the underwriter's staff, rather than by the very title agent who is named as the authorized closer.

To issue a CPL naming the entity as authorized closer, the ATG member must provide ATG with a signed Indemnity Agreement. In the Indemnity Agreement, the member agrees to indemnify ATG for losses ATG experiences due to the conduct of the entity ATG names as authorized closer in the CPL. Once this Indemnity Agreement is signed, then the ATG member can issue CPL's naming the entity as authorized closer. To obtain an Indemnity Agreement for signature, or to find out if one may be necessary for your situation, please contact the ATG Champaign Office's Clerical Department.

If you anticipate a need to issue CPL's in the name of an entity you own, please note that it may be necessary to title the Agency Escrow Disbursement Account you will be using in the name of the same entity, so that the CPL and wire instructions match. Most lenders will not wire funds to an account with a name that does not match the name of the authorized closer in the CPL. However, ATG has its own requirements for how to title Agency Escrow Disbursement Accounts. Please contact the Member Sales and Support Department to discuss how to handle this situation.

2. Where the Authorized Closer is an ATG Independent or Staff Closer
ATG can issue a CPL naming an ATG independent or staff closer as the authorized closer. If the closing will be conducted in the member's office and not at an ATG office, it is possible that this situation may create some confusion for the lender. The confusion arises from the fact that the title commitment is issued by the ATG member and the closing is scheduled to take place at the member's office, however, the authorized closer is someone else and the wire instructions state that the lender should send the funds to ATG's account, in a different location. The lender, reasonably, will be concerned that they are sending funds to the wrong person and location. To alleviate this confusion, it is often best to issue a CPL naming the ATG member and/or the ATG independent or staff closer as the authorized closer.

3. Where the CPL Will Insure All Closings the ATG Member Conducts for the Lender (Blanket CPL)
In certain situations, you may know that you will be conducting many closings for the same lender in the future. Many times, the lender would like to receive a blanket CPL, which is a CPL that will insure all the closings you do for that same lender. ATG can issue such a CPL, but it must come from the ATG Champaign Office Clerical Department, so that we can include it in our tracking system for blanket CPLs.

4. Where the CPL Will Insure All Closings Conducted by All ATG Members
Rarely, a lender will ask for a blanket CPL for all closings by all ATG members. ATG provides this coverage only as to active ATG members, and provides the lender with contact information to call to discover if any particular person is an active ATG member. To request a blanket CPL for all ATG members, contact the ATG Champaign Office Clerical Department.

 

C. Addressee

The majority of CPLs are addressed to lenders. However, from time to time, a buyer will request a CPL. This usually occurs where the buyer is paying cash for commercial property. A CPL for a cash transaction is the same form as used for any other transaction, but the addressee is the buyer rather than the lender. Where a buyer requests a CPL, be sure to ask if the buyer has written closing instructions for the authorized closer.

© ATG|Casenotes/Bulletin 0903_v2n3

[Last update: 3-19-09]

 

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