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Before Your Next Closing |
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Re: INSURED CLOSING LETTER
Based on the many questions and problems I heard at my events, I wanted to again cover the Insured Closing Letter.
Question: “Dyches, is there any way I can assure that the closing agent distributes the closing funds to the proper parties?”
Obviously, there was more to this person’s situation than appears here, but that is the essence. How do we protect ourselves in closings from erroneous acts of the attorney or title company? Many of you would think that title insurance would cover this. But for many actions, it does not.
What you want to ask for is an “Insured Closing Letter,” in some states referred to as a “Closing Protection Letter,” from the title insurance company. This is such an important issue; I have made a detailed write-up of this instrument a part of the Hard Money Lending Class.
This letter is a must any time a closing agent handles your money! Even though the letter actually is generated by the closing agent’s office, it is on the title insurance company letterhead and backed by them.
There is no extra charge for an insured closing letter from the title insurer that is already writing a policy for the closing. This letter guarantees that the title insurance company will insure you against a loss incurred in connection with a closing done by an attorney or closing agent approved by the title company, when such loss arises out of:
- Failure of the approved attorney to comply with your written closing instructions as they relate to -
(a) the status of the title to subject interest in land or the validity, enforceability and priority of the subject mortgage lien on subject interest in land, including the obtaining of documents and the disbursement of funds necessary to establish such status of title or lien, or
(b) the obtaining of any other document, specifically required by you, but only to the extent the
failure to obtain such other document affects the status of the title to said interest in land or
the validity, enforceability and priority of the lien of subject mortgage on subject interest in land.
- Fraud or dishonesty of the Issuing Agent or Approved Attorney in handling your funds or
documents in connection with such closings to the extent such fraud or dishonesty relates to
the status of the title to subject interest in land or to the validity, enforceability and priority of the
subject mortgage lien on subject interest in land.
This would have helped an investor who called me a while back. He had closed on the purchase of a property and then resold the property to another buyer using the same attorney shortly thereafter. The attorney never paid the moneys over to the seller or mortgage company in the first closing nor to him in the second closing!! She kept the money from BOTH closings. The property was being foreclosed and he was in a real bind. Since he had no insured closing letter the title insurance company would not cover this.
Sure, he can go after the attorney’s errors & omissions policy, but he would have to sue to even find out what coverage she had. With the title insurance, he could have dealt with them directly since he was the one being insured.
It is always better to be safe than sorry. Get the insured closing letter—especially when dealing with a new closing agent. The opening paragraph of the ALTA Closing Protection Letter furnishes protection to purchasers, lessees and lenders when closings are conducted by the title company's issuing agents or approved attorneys. |
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