Closing Protection Letters – New Forms

The American Land Title Association (ALTA), recently approved three new form closing protection letters. These new forms took effect on January 1, 2008.

Jon Anderson, Senior Title Counsel for CATIC wrote an article on these new forms and how they clarify the underwriter’s liability.

The Closing Protection Letter is the broadest form. The Closing Protection Letter – Limitations imposes a specified dollar limit on the liability, although this limitation is not applicable to mortgage loan transactions for individual one-to-four family residential properties. The Closing Protection Letter – Single Transaction Liability is limited to a single transaction with funds not in excess of a specified dollar amount.

I always ask for a closing protection letter when using an agent to issue the title policy and handle funds (as opposed to using an officer of the the title company.)

The trouble with these new forms is that they limit the protection to damages relating to the status of title to an interest in the land or the validity, enforceability or priority of the lien of the mortgage. You are protected if the deed or mortgage is not recorded.

With these new forms, you are not protected for the closing or settlement services being provided by the title agent. Clearly, an over-funding of the purchase price will not fall under the protection of these new closing protection letters.

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