It is not always possible to obtain a closing protection letter, for example, as in the state of New York. What specific documentation would a lender be required to obtain?
There are a number of states where closing protection letters are not permitted by insurance regulators. In these cases, an alternative contractual indemnity that provides equivalent protection against title agent misuse of the power of attorney or funds must be confirmed. This can include, for example, indemnity provisions in the agreement between the lender and the settlement provider, or an employee fidelity bond maintained by the title insurance agency. In some states, there are statutory protection schemes; these would also meet the requirements of the lender letter.
For more information, refer to the published Lender Letter LL-2020-03, Impact of COVID-19 on Originations.