What a Closing Protection Letter Actually Covers
It is the underwriter's promise, not the title agent's.
A closing protection letter is one of those documents that gets requested, issued and filed without anyone reading it. It is worth understanding, because what it covers is narrower than most people assume.
Who issues it
The underwriter — Stewart, Old Republic, whoever is writing the policy — not the title agency. That is the entire point. It is an indemnity from a large insurer standing behind the conduct of the local settlement agent.
What it covers
- Theft or misapplication of funds by the closing agent
- Fraud or dishonesty by the closing agent in handling funds or documents
- Failure to follow the lender's written closing instructions, where that failure causes loss
What it does not cover
It is not title insurance. It does not cover defects in title — that is what the loan policy is for. It does not cover the borrower defaulting, the property being worth less than expected, or an appraisal being wrong. And it does not generally cover losses arising from the lender's own instructions being inadequate.
Who it is addressed to
Usually the lender. It can be issued to cover the buyer and seller as well, which is worth asking for — a buyer wiring a substantial down payment has exactly the exposure a CPL addresses.
What it costs
In Pennsylvania the charge is fixed by the filed rate schedule, remitted in full to the underwriter, and does not increase with the number of letters issued for the same transaction. In Alabama it varies by underwriter.
Requesting one
Lenders can request a CPL here. Same business day in nearly every case — and if your closing is sooner than that, telephone rather than relying on a form.
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Note: general information for Pennsylvania and Alabama property owners, not legal or tax advice. Rates, taxes, eligibility and deadlines are set by statute and by each state’s filed rate schedules and can change. Confirm the specifics with us and with a qualified professional before relying on them for a transaction.
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