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Closing Service Letter Charge Increased
The Department of Banking and Insurance [DOBI] has approved the request of the New Jersey Land Title Insurance Rating Bureau [NJLTIRB] for an increase in the charge for issuance of the CSL from $25.00 to $75. 00. The increase became effective on June 1, 2012. Under Rate Manual §6.6, the charge is identified as a “special risk premium”, because the sums collected for issuance of CSLs are intended to cover defalcation losses. Thus, as is currently the case, the entire amount received for each CSL issued ($75.00) will be remitted by agents to their respective FNTG underwriters. Recent events have shown that such losses continue to be a major source of concern for the title industry. In fact, two insurers were compelled to suspend operations last year as a result of defalcation-related payments.
DOBI originally approved a $25.00 charge in 1994, in the wake of the decisions by the New Jersey Supreme Court in Sears Mortgage Co. v. Rose, 134 N.J. 326 (1993) and Client’s Sec. Fund v. Sec. Title & Guar. Co., 134 N.J. 358 (1993). At that time, the existing form, known as the Closing Protection Letter [CPL], was withdrawn and replaced by the CSL. Although both protect the lender against defalcation loss by the closing attorney or policy-issuing agent, the CSL restricts coverage for failure to comply with the lender’s written closing instructions to title-related matters. On the other hand, the CSL also provides limited coverage to the borrower or cash purchaser in cases where the realty is the principal residence of the borrower or cash purchaser.
Nevertheless, there are some situations where issuance of a CSL may be inappropriate. These include, but are not limited to, the following:
 The lender does not intend to secure its loan with a mortgage to be insured by the title insurer issuing the CSL.
 The CSL is requested on behalf of a seller or other party (besides an institutional lender).
 The insurer or agent has not issued a title commitment in connection with the transaction.
 The closing attorney represents the lender (rather than the borrower).
 The party whose conduct is to be covered is neither an attorney-at-law of New Jersey nor a policy-issuing agent.
In sum, the CSL provides protection to lenders (and, to some extent, borrowers and purchasers) for certain real estate-closing losses, as more specifically set forth in the text of the CSL. However, it does not extend to all closing-related problems which may arise. Nor is its issuance appropriate in all circumstances.
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