Closing Protection Letters in New York
Joshua Stein
It’s an overstatement and sort of an urban legend to say NY title insurance companies categorically can’t issue closing protection letters. The last word on this topic, to my knowledge, was a circular issued by the Dept of Insurance in 1992. The DOI said it’s OK to issue letters that confirm the authority of the closing agent to act for and bind the title company as the title company’s agent, which was really the only issue at hand in the discussion below. But title insurance companies can’t stand behind the attorneys’ wrongful acts and omissions as attorneys, because that’s outside the permitted activities of title insurers (i.e., it’s sort of malpractice insurance), so that type of closing protection letter is prohibited. I’m attaching a copy of the DOI circular in question. If anyone knows of anything more recent or supplemental to this, I would really appreciate knowing about it. Thanks everyone.
Joshua Stein
JOSHUA STEIN PLLC
59 East 54th Street, Suite 22
New York, NY 10022
This email doesn't bind anyone or create an attorney-client relationship. It's confidential. If it wasn't intended for you, please ignore it, delete it, and tell us. No one may use any tax discussion in this email to avoid tax penalties or to promote, market, or recommend anything.
From: nyclar...@googlegroups.com [mailto:nyclar...@googlegroups.com]
On Behalf Of Kevin Connolly
Sent: Tuesday, August 14, 2012 12:52 PM
To: nyclar...@googlegroups.com
Cc: Stephen Seldin
Subject: Re: [nyclarealprop] Re: Settlement Agent Malfeasance
It's my understanding that Closing Protection Letters may not be issued in New York; and they're not what they are cracked up to being in any event.
On Tuesday, August 14, 2012 12:46:19 PM UTC-4, Stephen Seldin wrote:
The lender should have had a "Closing protection letter". There is an article on closing protection letters at:
From: "Calvin, Charles D." <Charles...@faegrebd.com>
To: "'nyclar...@googlegroups.com'" <nyclar...@googlegroups.com>
Sent: Tuesday, August 14, 2012 11:28 AM
Subject: RE: [nyclarealprop] Re: Settlement Agent Malfeasance
I don’t understand why it should matter whether the lender had its own attorney – the attorney would clearly have been an agent for the lender, but under the court’s view, wouldn’t the settlement agent also have been either a separate agent of the lender, or a subagent of the attorney on behalf of the lender?
I’m not familiar with New York rules or local practices, and of course title underwriters in every jurisdiction try to insulate themselves from liability for the acts of title “agents”. Still, I would think that Fidelity’s authorization of the local agent to advertise that it could issue title commitments and policies on behalf of Fidelity would constitute a “manifestation” of apparent authority for the agent to act on Fidelity’s behalf in marking up a commitment to show that requirements had been satisfied. Perhaps the limitations on the agent’s authority are so well understood locally that no such apparent authority exists.
Chuck Calvin
charles...@FaegreBD.comDirect: +1 303 607 3677
Mobile: +1 303 618 4515
FAEGRE BAKER DANIELS LLP
1700 Lincoln StreetSuite 3200
Denver, CO 80203-4532, USA
From: nyclar...@googlegroups.com [mailto:nyclar...@googlegroups.com] On Behalf Of Lance Pomerantz
Sent: Monday, August 13, 2012 6:39 PM
To: nyclar...@googlegroups.com
Subject: Re: [nyclarealprop] Re: Settlement Agent Malfeasance
Kevin-
As a general rule, the scenario that gave rise to this case can’t happen when the lender is represented by its own counsel. It is precisely because the “agent” is attempting to serve two different principals (the bank as settlement agent and the title insurer as policy-writing agent) that the imputation to the lender is possible.
--
Lance R. Pomerantz, Esq.
Land Title Law
140 Old Broadway
Sayville NY 11782-1710
Tel.: 631.727.0133
Fax: 631.963.3210
E-mail: la...@LandTitleLaw.com
Web: http://www.LandTitleLaw.com
From: Kevin Connolly <kcon...@andersonkill.com>
Reply-To: <nyclar...@googlegroups.com>
Date: Mon, 13 Aug 2012 16:30:44 -0700 (PDT)
To: <nyclar...@googlegroups.com>
Subject: [nyclarealprop] Re: Settlement Agent Malfeasance
I keep reading and re-reading this post. I keep coming back, looking for the screams of outrage. And I don't see them, so I must be missing something. I read the case to say that if I attend a closing as counsel for the lender, and I release the funds based on the title closer's delivery of a marked-up title commitment and his possession of the mortgage to record and the moolah with which to pickup the sat of mortgage, if the title closer absconds with the funds the loss falls on the lender, because the closer is the *lender's* agent.
Does it really say that? Have title closings come to a screeching halt in NY (unless the documents are pre-recorded and we have a clean title policy? How can we put this risk back where it belongs, on the title company?
On Wednesday, July 25, 2012 10:18:46 AM UTC-4, Lance Pomerantz wrote:At the behest of Mike Siris, I’m posting the most recent installment from my firm’s e-newsletter:
Settlement Agent Malfeasance:
A recent Federal Court case may shake up closing practice in upstate New York.
In Fidelity National Title Insurance v. Cole Taylor Bank, No. 11 Civ. 4497 (MGC) (U.S. Dist. Ct., S.D.N.Y., July 10, 2012) <http://websites.networksolutions.com/share/scrapbook/65/653192/Fidelity_v._Cole_Taylor_Bank.pdf>, the court held that a title insurer was not liable for the defalcation and malfeasance of one of its policy-writing agents. The Agent had been contacted by Illinois-based Cole Taylor Bank to perform settlement services in connection with loan refinancings in the Albany area. The case revolved around two specific instances in which the Agent prepared title insurance commitments and proceeded to close each loan in accordance with detailed instructions provided by the Bank and previously accepted, in writing, by the Agent. At each closing, the commitments were “marked up.” Post-closing, the Bank discovered that prior loans had not been paid off and that the monies earmarked for that purpose had been stolen by the Agent. The Bank made claims against Fidelity only to learn that the Agent had not remitted the policy premiums to Fidelity, the mortgages had not been recorded and the policies had never been issued.
The Bank sought to hold Fidelity liable on the basis of apparent authority in the Agent to act on behalf of Fidelity. Fidelity pointed out that its agreement with the Agent explicitly prohibited the Agent from providing settlement services on Fidelity’s behalf. More importantly, the Bank was unable to show that Fidelity had made any representations to the Bank that established apparent authority. In addition, testimony by the Bank’s own expert witness established that customary upstate closing practice did not establish apparent authority. Indeed, the expert testified that the “closing instructions from the lender to the settlement agent have nothing to do with the title agent.” And, that “when [the Agent] stole the loan proceeds, it did so as a settlement agent.”
The coup de grâce came in the Court’s finding that the Agent was legally the Bank’s agent, whose conduct could be imputed to the Bank. As a result, any liability that might have arisen under the marked up commitments was barred by Exclusion 3(a) of the ALTA policy, which excludes coverage for "[d]efects, liens, [and] encumbrances" that are "created, suffered, assumed, or agreed to by the Insured Claimant."
All the New York state appellate authority on this issue appears to emanate from the First and Second Departments. Since the dual-agency practice (settlement and title) is primarily an upstate phenomenon, it will be interesting to see where the Third or Fourth Departments come down on similar fact patterns in the future. Regardless, lenders are well-advised to carefully vet any settlement agent prior to retaining their services. In some jurisdictions, lenders can protect themselves against settlement agent malfeasance by obtaining a “closing protection letter” from the insurer, but CPL’s are not available in New York for this purpose.
--
Lance R. Pomerantz, Esq.
Land Title Law
140 Old Broadway
Sayville NY 11782-1710
Tel.: 631.727.0133
Fax: 631.963.3210
E-mail: la...@LandTitleLaw.com
Web: http://www.LandTitleLaw.com
Lance Pomerantz
--
Lance R. Pomerantz, Esq.
Land Title Law
140 Old Broadway
Sayville NY 11782-1710
Tel.: 631.727.0133
Fax: 631.963.3210
E-mail: la...@LandTitleLaw.com
Web: http://www.LandTitleLaw.com
From: Joshua Stein <jos...@joshuastein.com>
Reply-To: <nyclar...@googlegroups.com>
Date: Tue, 14 Aug 2012 17:12:45 +0000
To: "nyclar...@googlegroups.com" <nyclar...@googlegroups.com>
Conversation: Closing Protection Letters in New York
Subject: [nyclarealprop] Closing Protection Letters in New York
Joshua Stein
JOSHUA STEIN PLLC
59 East 54th Street, Suite 22
New York, NY 10022
(212) 688-3300
jos...@joshuastein.com
This email doesn't bind anyone or create an attorney-client relationship. It's confidential. If it wasn't intended for you, please ignore it, delete it, and tell us. No one may use any tax discussion in this email to avoid tax penalties or to promote, market, or recommend anything.
Sent: Tuesday, August 14, 2012 12:52 PM
To: nyclar...@googlegroups.com
Cc: Stephen Seldin
Subject: Re: [nyclarealprop] Re: Settlement Agent Malfeasance
It's my understanding that Closing Protection Letters may not be issued in New York; and they're not what they are cracked up to being in any event.
On Tuesday, August 14, 2012 12:46:19 PM UTC-4, Stephen Seldin wrote:
The lender should have had a "Closing protection letter". There is an article on closing protection letters at:
https://www.agentxtra.net/extranet/SingleSource/content/Articles/ClosingProtectionLetters.htm
From: "Calvin, Charles D." <Charles...@faegrebd.com <javascript:> >
To: "'nyclar...@googlegroups.com <javascript:> '" <nyclar...@googlegroups.com <javascript:> >
Sent: Tuesday, August 14, 2012 11:28 AM
Subject: RE: [nyclarealprop] Re: Settlement Agent Malfeasance
I don’t understand why it should matter whether the lender had its own attorney – the attorney would clearly have been an agent for the lender, but under the court’s view, wouldn’t the settlement agent also have been either a separate agent of the lender, or a subagent of the attorney on behalf of the lender?
I’m not familiar with New York rules or local practices, and of course title underwriters in every jurisdiction try to insulate themselves from liability for the acts of title “agents”. Still, I would think that Fidelity’s authorization of the local agent to advertise that it could issue title commitments and policies on behalf of Fidelity would constitute a “manifestation” of apparent authority for the agent to act on Fidelity’s behalf in marking up a commitment to show that requirements had been satisfied. Perhaps the limitations on the agent’s authority are so well understood locally that no such apparent authority exists.
Chuck Calvin
charles...@FaegreBD.com <javascript:>
Direct: +1 303 607 3677
Mobile: +1 303 618 4515
FaegreBD.com <http://www.faegrebd.com/> Download vCard <http://www.faegrebd.com/vcard/charles.calvin.vcf>
FAEGRE BAKER DANIELS LLP
1700 Lincoln Street
Suite 3200
Denver, CO 80203-4532, USA
From: nyclar...@googlegroups.com <javascript:> [mailto:nyclar...@googlegroups.com <javascript:> ] On Behalf Of Lance Pomerantz
Sent: Monday, August 13, 2012 6:39 PM
To: nyclar...@googlegroups.com <javascript:>
Subject: Re: [nyclarealprop] Re: Settlement Agent Malfeasance
Kevin-
As a general rule, the scenario that gave rise to this case can’t happen when the lender is represented by its own counsel. It is precisely because the “agent” is attempting to serve two different principals (the bank as settlement agent and the title insurer as policy-writing agent) that the imputation to the lender is possible.
--
Lance R. Pomerantz, Esq.
Land Title Law
140 Old Broadway
Sayville NY 11782-1710
Tel.: 631.727.0133
Fax: 631.963.3210
E-mail: la...@LandTitleLaw.com
Web: http://www.LandTitleLaw.com
From: Kevin Connolly <kcon...@andersonkill.com <javascript:> >
Reply-To: <nyclar...@googlegroups.com <javascript:> >
Date: Mon, 13 Aug 2012 16:30:44 -0700 (PDT)
To: <nyclar...@googlegroups.com <javascript:> >
Subject: [nyclarealprop] Re: Settlement Agent Malfeasance
I keep reading and re-reading this post. I keep coming back, looking for the screams of outrage. And I don't see them, so I must be missing something. I read the case to say that if I attend a closing as counsel for the lender, and I release the funds based on the title closer's delivery of a marked-up title commitment and his possession of the mortgage to record and the moolah with which to pickup the sat of mortgage, if the title closer absconds with the funds the loss falls on the lender, because the closer is the *lender's* agent.
Does it really say that? Have title closings come to a screeching halt in NY (unless the documents are pre-recorded and we have a clean title policy? How can we put this risk back where it belongs, on the title company?
On Wednesday, July 25, 2012 10:18:46 AM UTC-4, Lance Pomerantz wrote:
At the behest of Mike Siris, I’m posting the most recent installment from my firm’s e-newsletter:
Settlement Agent Malfeasance:
A recent Federal Court case may shake up closing practice in upstate New York.
In Fidelity National Title Insurance v. Cole Taylor Bank, No. 11 Civ. 4497 (MGC) (U.S. Dist. Ct., S.D.N.Y., July 10, 2012) <http://websites.networksolutions.com/share/scrapbook/65/653192/Fidelity_v._Cole_Taylor_Bank.pdf>, the court held that a title insurer was not liable for the defalcation and malfeasance of one of its policy-writing agents. The Agent had been contacted by Illinois-based Cole Taylor Bank to perform settlement services in connection with loan refinancings in the Albany area. The case revolved around two specific instances in which the Agent prepared title insurance commitments and proceeded to close each loan in accordance with detailed instructions provided by the Bank and previously accepted, in writing, by the Agent. At each closing, the commitments were “marked up.” Post-closing, the Bank discovered that prior loans had not been paid off and that the monies earmarked for that purpose had been stolen by the Agent. The Bank made claims against Fidelity only to learn that the Agent had not remitted the policy premiums to Fidelity, the mortgages had not been recorded and the policies had never been issued.
The Bank sought to hold Fidelity liable on the basis of apparent authority in the Agent to act on behalf of Fidelity. Fidelity pointed out that its agreement with the Agent explicitly prohibited the Agent from providing settlement services on Fidelity’s behalf. More importantly, the Bank was unable to show that Fidelity had made any representations to the Bank that established apparent authority. In addition, testimony by the Bank’s own expert witness established that customary upstate closing practice did not establish apparent authority. Indeed, the expert testified that the
“closing instructions from the lender to the settlement agent have nothing to do with the title agent.” And, that “when [the Agent] stole the loan proceeds, it did so as a settlement agent.”
The coup de grâce came in the Court’s finding that the Agent was legally the Bank’s agent, whose conduct could be imputed to the Bank. As a result, any liability that might have arisen under the marked up commitments was barred by Exclusion 3(a) of the ALTA policy, which excludes coverage for "[d]efects, liens, [and] encumbrances" that are "created, suffered, assumed, or agreed to by the Insured Claimant."
All the New York state appellate authority on this issue appears to emanate from the First and Second Departments. Since the dual-agency practice (settlement and title) is primarily an upstate phenomenon, it will be interesting to see where the Third or Fourth Departments come down on similar fact patterns in the future. Regardless, lenders are well-advised to carefully vet any settlement agent prior to retaining their services. In some jurisdictions, lenders can protect themselves against settlement agent malfeasance by obtaining a “closing protection letter” from the insurer, but CPL’s are not available in New York for this purpose.
--
Lance R. Pomerantz, Esq.
Land Title Law
140 Old Broadway
Sayville NY 11782-1710
Tel.: 631.727.0133
Fax: 631.963.3210
E-mail: la...@LandTitleLaw.com
Berey, Mike
See the annexed 2005 letter ruling
Michael J. Berey
Senior Vice-President
Chief Underwriting Counsel - New York State
First American Title Insurance Company
National Commercial Services
633 Third Avenue, New York, New York 10017
Tel: 212-850-0624
Fax 212-331-1511
Email: mailto:mbe...@firstam.com
A member of the First American Financial Corporation family of companies | NYSE:FAF
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From: nyclar...@googlegroups.com [mailto:nyclar...@googlegroups.com]
On Behalf Of Joshua Stein
Sent: Tuesday, August 14, 2012 1:13 PM
To: nyclar...@googlegroups.com
Subject: [nyclarealprop] Closing Protection Letters in New York
It’s an overstatement and sort of an urban legend to say NY title insurance companies categorically can’t issue closing protection letters. The last word on this topic, to my knowledge, was a circular issued by the Dept of Insurance in 1992. The DOI said it’s OK to issue letters that confirm the authority of the closing agent to act for and bind the title company as the title company’s agent, which was really the only issue at hand in the discussion below. But title insurance companies can’t stand behind the attorneys’ wrongful acts and omissions as attorneys, because that’s outside the permitted activities of title insurers (i.e., it’s sort of malpractice insurance), so that type of closing protection letter is prohibited. I’m attaching a copy of the DOI circular in question. If anyone knows of anything more recent or supplemental to this, I would really appreciate knowing about it. Thanks everyone.
Larry Machiz
In the section on NY law he discusses both Circular 18 and the 2005 opinion that Messrs. Stein and Pomerantz distributed, and of course he goes on at length more generally. He also includes a form of the limited letter that NY insurers can give.
Hope this is useful.
Larry
Larry H. Machiz, Esq.
240 Tice Hill Road | Ghent, New York 12075
Voice: (518) 392-6960 | Fax: (518) 392-6961
E-mail: machi...@fairpoint.net
This email may contain material that is confidential, privileged and/or attorney work product for the sole use of the intended recipient. Any review, reliance or distribution by others or forwarding without express permission is prohibited. If you are not the intended recipient, please contact the sender and delete all copies. Thank you.
From: nyclar...@googlegroups.com [mailto:nyclar...@googlegroups.com] On Behalf Of Lance Pomerantz
Sent: Tuesday, August 14, 2012 1:45 PM
To: nyclar...@googlegroups.com
