Closing Protection Letters from the Title Company
Closing Protection Letters-What are they and when should you get one
A closing protection letter is issued in an Escrow and there could be several issues. What are they?
First a closing protection letter is issued when money is deposited to the Title Company. This is used to protect the money that is held by the title company to “protect” the money that they hold. It is used to safeguard the funds from fraud and embezzlement. It is also used to protect the money if the title company would close their doors. Typically not in this market but in the late 2000s we saw this.
Who gets a closing protection letter? The three main parties are the Buyer, the Seller and the lender if there is one involved on the Buyer’s side.
The Title companies all have a credit line and this line could be underwritten by a larger company. So the Closing Protection letter may come from a different company but will have the Escrow number on it. This letter for the amount of the money held will go against the credit line. This is standard practice.
If you are in the Seller’s position and earnest money is deposited, you definitely want a “CPL” to insure that your interest in the earnest money is protected. If for some reason the Buyer defaults and you have the right to the earnest money, you want to be sure that it is there when you obtain it.
If you are in the Buyer’s position and you have earnest money on deposit, you definately want a “CPL”. This protects your earnest money as the followed in the definition of the terms of the contract. When you deposit your closing funds whether it is additional funds or the whole amount, you should request an updated CPL.
If you are a Buyer and are obtaining a loan, the lender is NEVER going to send over the closing funds until they have a CPL as well.
So as you can see there may be three to four (or more) CPL in an Escrow. These are highly recommended for both the Buyer and Seller. As I have stated, your lender will require it.
Remember to post your comments and feel free to call me anytime.
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Critical information that definitely protects the parties involved in the transaction. Great overview Linda!
Benji thanks for taking the time to not only read but to post a comment!
Thank you Linda! Once again by taking the time to read your blog I am a bit smarter this morning and will be able to help inform my clients better when asked about this fee. You made it very easy to understand.
I appreciate your comments! Thanks for taking the time to read this!
It is better to have a team in place when it comes to real estate. Linda has her team in place. One must have a knowledgeable escrow officer in order for the easy and tough deals to close. The CPL is just another layer of protection. Thanks for sharing this critical information to the public.
This blog contains great advice to protect parties in a real estate transaction. Closing protection letters are provided to lenders every day but buyers and sellers rarely ask for one. Linda always asks for CPLs for her clients. Good representation and good advice for buyers and sellers for future deals. Keep sharing Linda!