What is Closing Protection Coverage?
Ohio Revised Code 3953.32 requires that, at the time an order is placed for a title insurance policy, the title insurance company or its agent must offer closing or settlement protection to the parties to the transaction. This is accomplished through the issuance of a closing protection letter (a "CPL"). A CPL is intended to indemnify the person who purchases it from the title insurance agent’s: (1) theft, misappropriation, fraud, or any other failure to properly disburse settlement, closing, or escrow funds; and (2) failure to comply with any applicable written closing instructions, when agreed to by the title insurance agent.
What is the difference between a title insurance policy and a CPL? Why would you need both?
A title insurance agent often plays a dual role in a real estate transaction. The agent acts on behalf of a title insurance company when it issues a title insurance policy to the buyer or to the buyer’s lender. In general, if the policy is issued to the buyer, it protects the buyer against adverse claims on his or her title to the property. If the policy is issued to a lender, it insures that the lender’s mortgage is a first lien on the property.
The agent may also act as the escrow agent for the transaction. In that role, the agent collects all of the funds and documents needed for the transaction, records the deed and/or mortgage, and disburses the funds in accordance with the instructions it receives from the parties. A title insurance policy may not protect an injured party from an escrow agent’s mistake or fraud because the escrow agent is not acting on behalf of the title insurance company when it acts in its role as an escrow agent. But, if a CPL is purchased, then the title insurance company is obligated to provide an indemnification against acts of the escrow agent that are covered by the CPL.
The purchase of a CPL is voluntary. There are many fees involved in closing a real estate transaction so it may be natural to decline to pay for any additional fees that are not required. However, the cost of a CPL is only $40.00 to $55.00. Considering the protection provided by a CPL, a party to a closing should closely consider the advantages to purchasing the coverage.