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Requiring Closing Protection Coverage
by Robert Franco | 2008/04/08 |

In Ohio, title agents now must offer Closing Protection Coverage (CPC) to all parties to a transaction - lender, buyer/borrower and seller. Basically the CPC indemnifies the covered parties for the agent's theft, misappropriation, fraud, or any other failure to property disburse funds and failure to comply with written closing instructions when agreed to by the agent. It is an awkward form of insurance to sell because the agent is requiring the covered party to pay a fee to be protected against the agent's misfeasance. The cost is $35 for the lender, $50 for the seller, and $15 for the buyer/borrower.

But what happens if a party to the transaction declines the CPC, but still requires the agent to sign its closing instructions? Presumably, the party would have a tough time seeking indemnification from the underwriter in the event of loss that would have been covered under the CPC because they expressly waived the coverage. Is the agent still on the hook? Most likely if the agent has embezzled from his escrow account he is not all that concerned with the liability he may incur to a lender. Let's face it, if you are willing to commit a felony, you probably don't have much regard for civil liability. But, what about an unintentional mishandling of funds, negligently disbursing a large sum to the incorrect party, for example?

In the case of an agent's negligence, resulting in a short-fall in his escrow account, the agent may very well be the only source of recovery by an injured party. If declining CPC prevents recovery from the underwriter, the agent may still be liable to third parties for his negligence - even if he is acting in his capacity as an agent for the underwriter.

Thus, it would seem to me that it would be a good idea to require anyone providing closing instructions to purchase CPC before agreeing to comply with them. Though I believe that it was mainly the issue of fraud by title agents that promulgated this rule in Ohio, negligence is still a possibility. Honest agents do not worry about losses due to their own fraud, though the fraud of an employee should still be a concern. If an underwriter can escape liability when the would-be covered party declines the coverage - maybe the title agents should consider requiring CPC when provided with closing instructions that could result in liability.

Just out of curiosity, does anyone require lenders, or other parties providing instructions, to purchase CPC?

Robert A. Franco

Source of Title Blog ::


Categories: Risk, Liability and Claims, Small Agents

592 words | 16615 views | 2 comments | log in or register to post a comment

It's pretty much a moot point here,...
It's pretty much a moot point here, as far as the lenders go. They all require a closing protection letter on each closing. But there is no charge for it here. I don't think it's requested, or offered, to other parties as a normal practice.

In your case, Robert, based on what you have written, I don't think it makes any difference to you as to whether any of the parties purchase the coverage. It only changes who will be demanding satisfaction from you - the offended party or the underwriter.

So, in my view, requiring the different parties to purchase coverage will at best, and at worst, only make the other agents in your neighborhood look more attractive.
by Pat Scott | 2008/04/08 | log in or register to post a reply

Right! The underwriters would proba...
Right! The underwriters would probably have a right of subrogation to collect from the agent anyway. But, I think there are still a couple of reasons to require the coverage.

1. If the claim by the covered party is for the failure to comply with their instructions, I would rather have the underwriter in my corner trying to defend against the claim, rather than going it on my own. I think that closing instructions are sometimes used to try to put an agent on the hook for things that really shouldn't be their responsibility.

2. Maybe I am naive, but I don't think the underwriters really want to subrogate against their agents. Though I'm sure it depends on the situation, it probably isn't good business for the underwriters to sue their agents.

3. If it is something that the agent should be liable for - the underwriters would probably be more willing to work out a long-term payment plan than a lender.

I would love to see some statistics on how often the underwriters look to their agents to cover losses. I'm sure it happens, but I don't think it is all that frequent. For example, the underwriters have the right to subrogate against their agents for claims from searching errors (negligence), but I am not aware of any incidents where they have. It probably does happen, to some degree, but it isn't something that would often be general knowledge.

In Ohio, the CPC used to be free - and there are some agents that believe that it still should be. If the underwriters were more careful with who they signed as agents, and they were more diligence with their annual audits, this would not be such a big issue.
by Robert Franco | 2008/04/09 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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