A lender who recently accepted a CPL from an independent title agent/closing attorney at face value was surprised to learn the CPL was fraudulent. The CPL and Title Commitment were provided just a few days before closing and the lender closed the loan based on the provided title insurance documents without independently validating their authenticity. Consequently, when the closing agent absconded with the loan proceeds and did not pay off the prior loan, the lender was left with a significant loss. The loss has increased as the result of the lender incurring hefty legal fees to pursue a claim against the underwriter. What’s more, as the result of the fraud the lender had no title insurance and had to repurchase the loan from its investor.
An agency relationship can be terminated at any time by the title underwriter. While many CPLs contain notices to the beneficiary suggesting the document be validated, many lenders seem to skip this important step with independent agents. With the average loan amount now exceeding $400,000, just one bad transaction can have significant financial impact to a lender’s balance sheet. Certainly, loss frequency from CPLs may be very low, but with current loan amounts severity can be exceptionally high.
It’s also important to recognize that the CPL has very narrowly defined coverage. The insurance contract only covers actions by the closing agent that may affect the validity of the mortgage lien or property title. Actions by the closing agent that may impact loan marketability are not covered. Thus, a documentation error or delay would not be covered by the CPL. It’s also important to consider that the CPL excludes privacy violations. So if the closing agent gets hacked and all the borrower’s NPI that’s in the final application sent to closing is somehow released to non-authorized parties, there’s no insurance coverage
Ask us about CPL AssureSM to confirm CPL is a valid insurance contract for the proposed loan transaction and how the Dytrix program mitigates the occurrence of privacy risk by closing agents.