Bulletin: IN2013008

Dear Associates:

The following Frequently Asked Questions (FAQs) address questions concerning the issuance of a closing protection letter (“CPL”) under SEA 370 effective July 1, 2013.  

WHEN IS A CPL REQUIRED TO BE ISSUED?

A CPL is required to be issued under the following circumstances:

A title policy is issued by a title company or title insurance producer on behalf of underwriter in a residential real estate transaction, and

A title company or title insurance producer acts as a settlement or closing agent for the residential real estate transaction

If the above conditions are met, a CPL must be issued to the lender, buyer/borrower and seller for a fee of $25 each as set forth in the Stewart Title Guaranty (“Stewart”) Schedule of Charges for Use filed with the Indiana Department of Insurance (“IDOI”) for Indiana. The CPL requirement applies to residential refinance transactions, purchase transactions with or without financing and second mortgage/HELOC transactions by a lender other than the primary lender.

IS A CPL MANDATORY IN A COMMERCIAL TRANSACTION?

No. A CPL is not mandatory in a commercial transaction as defined by Stewart for CPL issuance purposes as a non 1-4 family transaction. The charge for the CPL issued to a party in a commercial transaction is the same as residential.  

HOW MANY CPL FORMS WILL A TITLE COMPANY HAVE TO PRODUCE?

Stewart has two filed CPL forms-the Seller CPL and the Lender, Buyer; Borrower CPL. On a sale transaction, the appropriate form must be delivered to each party (one for the seller on the seller CPL form, one for the buyer/borrower, and one for the lender both of which are on the Lender, Buyer, Borrower CPL form). On a refinance transaction, the appropriate form must be delivered to each party (one for the borrower and one for the lender both of which are on the Lender, Buyer, Borrower CPL form). On all cash sale transactions, the appropriate CPL form must be given to the Buyer and the Seller.

WHO PAYS FOR THE CPL?

SEA 370 provides that the party benefitting from the CPL shall be charged a fee. STEWART Bulletin IN2013006 sets forth how the fees are to be disclosed on the HUD-1. It is our opinion that parties may negotiate payment of the fee in the purchase or loan agreement as long as the fees are properly disclosed on the HUD-1 as instructed in STG Bulletin IN2013006. The fees to be charged shall be $25 each for a lender, buyer/borrower and seller. In the event of a second mortgage or HELOC by a lender other than the primary lender, an additional fee of $25 per letter is to be charged.

Examples:

In a refinance transaction, the CPL charges would be $50 total ($25 for lender and $25 for borrower);

In a purchase transaction with financing, the CPL charges would be $75 total ($25 for lender, $25 for borrower/buyer and $25 for seller);

In a purchase transaction without financing, the CPL charges would be $50 total ($25 for seller and $25 for buyer)

CAN AN ADDITIONAL AMOUNT FOR PROCESSING THE CPL BE ADDED TO THE CPL FEE AS LONG AS THE FILED FEE IS REMITTED TO STEWART?

No. As of July 1, 2013, only those rates that are filed with the IDOI may be charged. Only the exact fees filed by Stewart and provided to issuing offices in the Schedule of Charges for Use in Indiana effective July 1, 2013 should be charged and disclosed on the HUD-1 for CPL fees. No other charge may be included with the CPL fee on the HUD-1. Any other charges must be separate from the CPL fee.

IS A SEPARATE FEE CHARGED WHEN THE CPL FORM IS REVISED?

No. Only one fee is charged per letter to each of the Buyer, Lender, and Seller as applicable. No fee is charged if the transaction is cancelled or the form is modified prior to closing. No changes can be made to a CPL form in the system after 30 days.

HOW MANY CPLS ARE ISSUED IF THERE ARE MULTIPLE SELLERS AND BUYERS?

If the statutory requirements are met, the new law requires a CPL to be issued to each party in a residential real estate transaction. In the case of multiple sellers or buyers, it is our opinion that this condition can be satisfied by issuing one CPL listing the names of all sellers or buyers. The charge is $25 inclusive covering all sellers or buyers. If the names of the buyers or sellers exceed the number of character limitations available within the Stewart ICL system, you must contact the Agency Contracts/ICL Administration Department to request production of a manual letter outside of the system.  

WHO ISSUES THE CPL IN A SPLIT TRANSACTION WHERE ONE STEWART AGENT IS ACTING AS SETTLEMENT/CLOSING AGENT AND ANOTHER STEWART AGENT IS ISSUING THE POLICY?  

A CPL may only be issued in a transaction in which a policy is being issued by an authorized Stewart agent and an authorized Stewart agent is acting as a settlement/closing agent for the transaction. Both agents must have an Agent I.D. Number for the State of Indiana. The policy issuing agent is required to issue the CPL and remit the fees to Stewart in accordance with the instructions set forth in Stewart Bulletin IN2013006. The CPL letters should include both the name of the authorized Stewart agent issuing the policy and the authorized Stewart Agent who is acting as the settlement/closing agent. In order to issue a dual agent CPL, the Agent I.D. for the policy issuing agent should be entered in the “Agent Number” field and the Agent I.D. for the authorized Stewart agent acting as a settlement/closing agent should be entered in the field “Second Agent Number”.

IS THE CPL PREMIUM?

Yes, the IDOI has determined that the CPL is premium and subject to premium tax. The CPL fee must be disclosed on the HUD-1 and reported to Stewart Title Guaranty as premium. Instructions for disclosing on the HUD-1 and reporting to Stewart are set forth in STEWART Bulletin IN2013006.

IS THE CPL FEE SPLIT BETWEEN UNDERWRITER AND AGENT?

No. SEA 370 states that the fee is “not subject to an agreement requiring a division of fees or premium collected on behalf of company (underwriter).” Therefore, the entire CPL fee must be remitted to Stewart Title Guaranty as set forth in STEWART Bulletin IN2013006.  

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.