What is an insured closing letter and why am I paying for it?
An insured closing letter, also called a closing protection letter, is issued on behalf of a title agent (i.e., title/settlement company) by the title insurance underwriter for the benefit of your mortgage lender...
In short, this letter is a form of insurance to protect your lender against certain acts (i.e., non-compliance with lender’s instructions, theft, etc.) committed by the title company.
As the lender must make sure that the title agent has authority to issue lender’s title insurance, this letter must be issued to the lender prior to the delivery of the lender’s closing package and instructions
Once the letter is issued and the loan is ready to be closed, the lender provides instructions to the title agent along with the documents for the borrower to sign. This letter provides assurances that the lender may be compensated for losses resulting from certain claims arising from the title agent’s negligent acts.
The fee for the letter is a pass-through cost to the borrower like the lender’s title insurance policy.