Lenders often understand the necessary endorsements and particular policy coverages covered by a transaction funded by a Small Business Administration Loan (SBA), which could differ depending on the nature of the transaction involved. However, the majority of lenders may not be used to the significant role that the underwriter’s agent plays in closing and issuing policies. A title agent insurance underwriter’s agent is allowed to give out the title insurance policy on behalf of the underwriter and conduct dealing closings for lenders. When such occurs, it clarifies the role of the Closing Protection Letter.

A Closing Protection Letter details the title underwriter’s commitment to refund the lender if any losses are caused by particular sorts of wrongdoing, particularly the actions or inactions of the authorized title agent throughout the closing process. Even though there is variation in the regulations of Closing Protection Letter across states, it generally compensates the lender for losses due to the inability of the agent to abide by instructions regarding:

  1. The preference, authenticity, and execution of a lien or the state of ownership of a property, as well as the paperwork and capital, disbursed to secure title or lien priority.
  2. The agent’s ignorance, deception, or fraud in the management of documentation or capital at closing, but only about title status or lien priority.

It is therefore important for lenders to ascertain who conducts the closing when title insurance is requested to ensure that a closing protection letter would be needed or not. To read more on Closing Protection Letters and how it protects the lenders, click here.


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