Closing protection letters: What are they and why do lenders request them?
Many lenders routinely request closing protection letters. A closing protection letter, sometimes referred to as an insured closing letter, is a document issued by title insurance underwriters that sets forth an underwriter’s responsibility for negligence, fraud and errors in closings performed by agents and approved attorneys. It indemnifies the Lender against loss or damage arising from a breach of certain fiduciary duties owed by the closing agent to the parties to the transaction. This document is necessary because the agency /principal relationship between an underwriter and a policy issuing agent or approved attorney is limited to the issuance of a policy and does not extend to escrow functions.
