Whether you are buying or selling a piece of real estate in today’s market, it is important to obtain a closing protection letter. Closing protection letters are required by every lender in any real estate transaction. They are also sometimes referred to as insured closing letters. They are promulgated in Texas by the Texas Department of Insurance; outside of Texas, the forms are promulgated by the American Land Title Association.
The closing protection letter, or T-51 Purchaser/Seller Insured Closing Service Letter, is an indemnity given to a Seller or Purchaser from a title insurance company agreeing to be responsible if the closing agent commits fraud by mishandling the documents delivered and/or misappropriation of the proceeds escrowed with the closing agent. The letter issued to the lender in Texas is the T-50 Insured Closing Service Letter.
There are several examples where fraud might occur either by a title agent or by an underwriter closing officer. For example, the mishandling of documents deposited into escrow for the transaction or mishandling of funds deposited with the agent for the transaction. In such an instance, the title insurance company would agree to make any necessary financial remediation.
There are conditions to the protection that is afforded by the letter having to do with documents relating to the title insurance product. The letter does not protect any depositor against a bank failure if funds are deposited at the time of the failure. The protection is not going to go above and beyond the federally mandated protection afforded by the FDIC. That is a common misconception of this letter.
The letter is available to all buyers and sellers of real estate in Texas, and it is not limited to the property type being closed and insured. However, the protection provided by the insured closing service letter is only available for transactions in excess of $250,000.
Traci Miller is executive vice president of commercial operations for Allegiance Title Co.Contact her at [email protected]