Many rules and law changes take effect at the beginning of a month. July 1^st was no exception.

One that affects buyers, sellers, and lenders in a real estate transaction that was the change that a Title Company now needs to issue a closing protection letter to a lender, borrower, buyer and seller of the property in all residential real estate transactions in which a title policy is to be issued by the title company or insurance producer and the title company or insurance producer is also acting as a settlement or closing agent.

The possible fee that is charged to each party receiving the benefit of the closing protection letter (CPL) will be payable at closing and needs to be reflected on the HUD-1/Settlement Statement. The Good Faith Estimate (GFE) tolerance requirements under the Real Estate Settlement Procedures Act may be affected by the new fee as well.

In the past, the closing protection letter (CPL) was customarily issued in Indiana to lenders. Now the Indiana Legislature recently enacted Senate Enrolled Act 370 requiring the mandatory issuance of a closing protection letter (CPL) in residential real estate transactions for a fee. It is still voluntarily for Commercial Transactions. Indiana is one of nineteen (19) states that have enacted the mandatory closing protection letter (CPL) for residential real estate transactions legislation.

The protection provided by the closing protection letter (CPL) is separate from the coverage provided under a traditional title insurance policy. The closing protection letter (CPL) provides a party with protection against theft or misappropriation of settlement funds and failure of the settlement or closing agent to comply with written closing instructions to the extent that these matters relate to the status of title to or the validity, enforceability and priority of the lien of the mortgage on a party’s interest in property.

Here is a link to the full text of the new Indiana law and the Indiana Department of Insurance (IDOI) bulletin.