Who is typically protected by a Closing Protection Letter?

A Closing Protection Letter (CPL) is a document issued by a title insurance company that provides certain protections to the parties involved in a real estate transaction, particularly focusing on the parties who handle the closing process. The primary purpose of this letter is to safeguard the mortgage lender—also known as the mortgagee—who is forwarding funds during the closing.

When a mortgagee provides funds for a real estate transaction, they are at risk if the closing agent mishandles the funds or the transaction does not comply with the necessary legal requirements. The CPL effectively ensures that, in the event of any wrongdoing or errors by the closing agent, the mortgagee has a form of recourse through the title insurance company. This protection is essential for financial institutions to mitigate their risk associated with the potential for fraud, misappropriation of funds, or failure to adhere to closing instructions.

While the buyer, seller, and realtor all play crucial roles in the transaction, the CPL is specifically designed to address the unique risks faced by the mortgagee when funds are being handled. Hence, the mortgagee forwarding funds is typically the party that benefits from the protections afforded by the Closing Protection Letter.