Escrow Thursday: Sub-Escrow and the Closing Protection Letter
When the escrow company closing a transaction is an “independent” escrow company (not associated with a title company), or is affiliated with a different title company, lenders can, and frequently do, require that the title company doing the title insurance issue a Closing Protection Letter. This assures the buyer, seller and lender that the loans, mortgages, and liens of record have been paid off through escrow and properly released.
The title company arranges for the new lender’s loan proceeds to be sent to them for disbursement. It is then the title company’s responsibility to physically pay off any liens against the property.
A sub-escrow will;
1. Coordinate with independent escrow/lender for recording.
2. Require verified and updated pay-off demand figures with the lender.
3. Verify payment of property taxes.
4. Calculate the pay-offs on the day of closing.
5. Disburse all pay-offs and send the balance of funds to the independent escrow company for final disbursement.
A fee is charged for the performance of the above services, and will normally be billed to the Buyer.