Pub. 2 2011 Issue 2

www.wvbankers.org 18 T he loss inevitably will be borne by all of the parties to the transaction and not just the title company. As the economy falters, defalcations tend to increase as people face desperate economic choices. The title insur- ance underwriter can provide a lender and their customer with protection against these potential losses through the issuance of a closing protection letter; sometimes known as an insured closing protection letter or a CPL. The CPL protects the parties against fraud and dishonesty by the attorney in the handling of funds and documents. Like all other title products, this cover- age is limited to those matters that affect the status of title such as mort- gage payoffs, payoffs of judgment liens and earnest money deposits. The CPL coverage is in addition to, and not in lieu of, the protection pro- vided in the title insurance policy. By combining the two types of coverage, a lender can maximize the protec- tion available through title insurance companies. The following claim illustrates the ben- efits of obtaining closing protection: Imagine the following situation. You and your spouse are just finishing construction on a new home and have just sold your existing home that is encumbered by a bridge loan. The permanent financing on the new home has been obtained and the closing was held yesterday. The financing lender and the purchaser’s lender both wired funds into the attorney’s trust account. The attorney is responsible for paying off the builder of the new home as well as the bridge loan and existing loan on your old house. While sitting at the breakfast table drinking your coffee, you flip open the morning paper and see the following headline. “Local businessman commits suicide, attorney files for bankruptcy.” As you read on, you discover that the attorney who is holding all of your money filed for Chapter 7 bankruptcy protection and the owner of the title agency committed suicide after the bank discovered the title agency owner’s involvement in a multi-million dollar check-kiting scheme. Your heart is in your throat as you fear your dreams are crumbling around your feet. Several weeks have now passed and you have learned that the owner of the title agency has apparently been involved in this check-kiting scheme for a number of The theft of loan funds by an attorney, commonly known as a defalcation, is one, if not the most expensive type of claim that a title insurance company can face. Desperate Times May Lead to Desperate Acts Are You Protected? By Michael W. Aiken, Senior Vice President, Compliance Officer & Senior Counsel Investors Title Insurance Company