Opening Titles and Closing Remarks

In Indiana, we close and disburse at the closing table, not in Escrow. Most title companies in Indiana and many elsewhere advertise Insured Closings as well as title insurance and other services. But what is an insured closing? It is a broad term that is ripe for misunderstanding.

An insured closing occurs when the title insurance underwriter - that is the actual insurance company whose title policy is going to be issued - provides to the Buyer's new Lender a Closing Protection Letter (CPL for short). The CPL is provided before the Lender will send the Closing Agent documents or funds. The CPL assures the Lender against loss by reason of the Closing Agent's failure to follow the Lender's closing instructions and/or failure to properly handle the funds entrusted to the Closing Agent by the Lender. The American Land Title Association CPL (here http://www.alta.org/forms/ ) used by most title underwriters contains a clause extending this protection to the Lender's client, the Buyer.

The Buyer is tagging along on the Lender's instruction that the Closing Agent not disburse any funds until the Buyer owns the property and the Lender's mortgage is a first lien. This instruction requires the Closing Agent to obtain and record the deed(s) transferring title to the property to the Buyer and also make certain that any liens of the Seller are paid off at closing and released.  In the event these instructions are not followed and a problem ensues, the CPL gives the Lender and the Buyer a right of action directly against the title insurer, a large company with lots of assets, instead of the Closing Agent which may be a much smaller company with little or no assets. The CPL functions in similar fashion to a bond in that it transfers much of the Lender's and Buyer's closing risk to the title insurer.

While the CPL provides assurance to the Buyer that they will end up with title to the property and all of the Seller's obligations will be paid off, it does not provide any assurance that other parts of the closing statement are prepared in accordance with the Purchase Agreement or other instructions of the parties. Buyers should still carefully review the accuracy of the closing statement including the tax proration, repair credits and other matters and not just fees related to acquiring title, discharging liens or loan charges. By signing the closing statement, the Buyer is agreeing that it is correct. If an error is later discovered, the Buyer's only recourse will be against the Closing Agent and not the title insurance company. Reputable title and closing agents carry Errors & Omissions insurance to protect themselves against such problems.

The CPL provides no protection directly to the Seller. I will cover Seller's concerns in another post later this month.

As you can see, not everything about your closing is insured. You can minimize the risks by choosing a title company based upon its local expertise and reputation, not just its price. When you choose John Bethell Title Company, Inc., you'll work with experienced people that know you and your community. You won't have to navigate a call center matrix to get an answer. The people you need to talk with are not in a cube farm 1000 miles away. My office is just behind the front counter. I'm there to help - everyday.