Many lenders routinely request closing protection letters.
A closing protection letter, sometimes referred to as an insured closing letter, is a document issued by title insurance underwriters that sets forth an underwriter's responsibility for negligence, fraud and errors in closings performed by agents and approved attorneys. It indemnifies the indemnitee against loss or damage arising from a breach of certain fiduciary duties owed by the closing agent to the parties to the transaction. If a problem arises out of the closing, through error or fraud, the parties would normally be able to look only to the closing agent for recovery. In response to this concern, the closing protection letter has evolved. As title insurance companies spread across the country, they transacted business through issuing agents as well as through their branch offices.