Insured Closing Letters (also called Closing Protection Letters) for lawyers and lenders.

1. What Lenders and Lawyers Need
to Know about Insured Closing
Letters
Presented by

2. Many attorneys do not know that title insurers are
liable to their policy holders under two sources of
recovery:
The title insurance The Insured Closing
policy Letter

3. The Title Insurance Policy
insures that the lender’s mortgage instrument is valid and
that it is recorded in the lien position, or priority, that was
contracted for with the borrower.

4. The Insured Closing Letter (“ICL”)
assures that the lender and borrower will be “made whole” in
the event of a closing attorney’s error or fraud in the closing.

5. Title insurance protects policy holders
against losses due to defects in title, and
errors in the public records or title
examination.

6. ICLs protect policy holders against losses
due to a closing attorney’s accidental or
deliberate mishandling of closing funds or
documents.

7. CATIC uses the American Land Title Association
(“ALTA”) form ICL developed in 1987, which was
revised in 1998 and 2006, for residential real
estate closings.

8. The ICL covers attorney errors
regarding:
the status of the title to the land encumbered by the mortgage;
the validity, enforceability, or priority of the lien of said mortgage;
obtaining documents necessary to establish the mortgage holder’s interest in the real
estate;
obtaining any document specifically required by the lender;
the collection of funds due the lender;
the fraud or dishonesty in handling the lender’s funds or documents related to the
transaction.

9. The ICL does not cover attorney
errors regarding:
failure to comply with closing instructions that require title
insurance coverage that is inconsistent with the Policy
Commitment;
loss of the lender’s funds due to bank failure, insolvency or
suspension unless the failure results from the closing
attorney’s failure to follow the lender’s closing instructions;
mechanics’ liens in connection with the closing that are
covered under the lenders title insurance policy or title
insurance policy commitment.

10. An ICL provides coverage for a specific
transaction, and expires one year from the
closing date.

11. ICL coverage requires
The title insurer
The ICL, Policy
must be identified
The ICL must be Commitment, and
The lender must The lender must
on the HUD, and
issued for a final policy must
receive a Policy receive a final title
the insurance
specific be issued through
Commitment insurance policy
premium must be
transaction the same title
collected at
insurer
closing

12. Any one of these actions can destroy ICL
coverage:
The title insurer The ICL is
The ICL, Policy
is not identified changed by
Commitment, and The lender does
The lender does on the HUD, and someone other
final policy are not receive a
not receive a final a title insurance that title insurer
not issued Policy
title insurance premium must be or used for more
through the same Commitment
policy collected at than one
title insurer
closing transaction

13. ICL coverage is destroyed/preserved
A Policy
Commitment
is submitted
to the lender.
A Policy
Commitment
is not
submitted to
the lender.

14. ICL coverage is destroyed/preserved
The ICL is issued
for a specific
transaction.
The ICL is changed
by someone other
that title insurer or
used for more than
one transaction

15. ICL coverage is destroyed/preserved
The title insurer is
identified on the
HUD, and the
insurance premium
is collected at
closing.
The title insurer is
not identified on the
HUD, and the
insurance premium
is not collected at
closing.

16. ICL coverage is destroyed/preserved
The ICL, Policy
Commitment, and
final policy are
issued through
the same title
insurer.
The ICL, Policy
Commitment, and
final policy are
not issued
through the same
title insurer.

17. ICL coverage is destroyed/preserved
The lender
receives a
final title
insurance
policy.
The lender
does not
receive a final
title insurance
policy.

18. Types of errors covered by an ICL:
Failure to
Loss of the
follow the
lender’s
lender’s
security or
written
priority
closing
position
instructions
Failure to
Defalcation remit a final
or misuse of title
loan funds insurance
policy

19. Failure to follow the lenders written
instructions
May result from the closing attorney’s failure to follow written closing
instructions.
Closing attorneys cannot rely on oral instructions, and must advise the lender
when closing instructions conflict with HUD Regulations or local Title
Standards.

20. Examples of failure to follow the
lenders written instructions:
Failing to record
a Deed into a
sole borrower
when one spouse
is a borrower but
both spouses
hold title.
Failing to
subordinate a
Homestead
Declaration for
both spouses
when only one
spouse is the
sole owner and
borrower.

21. Loss of security or priority position
Errors in recording the mortgage can give rise to both a claim under a title
insurance policy and an ICL.

22. Examples of loss of security or priority
position:
delayed recording.
failure to record
the
mortgage, recordi
ng mortgages in
the wrong order.
recording
mortgages on the
Registry of Deeds
that should be
filed with the
Registry District of
the Land Court or
vice versa.
recording a
mortgage after a
borrower has filed
a Bankruptcy
petition.

23. Defalcation or misuse of mortgage funds
Defalcation or misuse of funds can also mean that a title
insurance premium collected at closing has not been paid to
the title insurer.

24. Examples of defalcation:
Miscalculating
short mortgage
payoff amounts.
Deliberately not
paying off
mortgages.
Failing to
disburse funds
in accordance
with the HUD
Settlement
Statement.

25. Failure to remit a final title insurance policy
Most attorneys do not know that failing to submit a final title insurance policy is
the basis for an ICL claim. Without ICL coverage, the lender may look to the
closing attorney for recovery

26. Events that trigger ICL claims are:
2 4
•Review of closed •Suspicious
loan package by Activity Report
•Transfer of •Foreclosure.
(“SAR”).
lender.
mortgage loan to
servicer or
secondary lender.
1 3

27. Recommendations for Lawyers and Lenders

28. Protect title insurance
coverage.
• Examine titles for no less than 50 years for
purchase-money mortgage closings, and for no
less than 20 years for refinance transactions.
• Search Probate and Bankruptcy records.
• Issue Policy Commitments only after reviewing
completed title examinations.
• Amend Policy Commitments if you discover
new information or need to make corrections.

29. Preserve ICL coverage.
• Obtain an ICL for each transaction.
• Never alter or reuse ICLs.
• Name the same title insurance
company on the ICL, Policy
Commitment, Line 1108 on the
HUD, and final title insurance policy.

30. Safeguard client funds.
• Balance HUD Settlement
Statements before closing.
• Record mortgages promptly
after confirming receipt of
funds.
• Remit title insurance premiums
and disburse funds
immediately after recording.

31. Add value and demonstrate
expertise.
• Submit closing packages with
original final title insurance
policies promptly after closing.
• Issue Certification of Title as
required under G.L.c. 93, §70.

32. Your success is our business.