What is the function of a Closing Protection Letter (CPL)?

The function of a Closing Protection Letter (CPL) is primarily to protect parties involved in a real estate transaction against fraudulent activities and the misapplication of funds. When a buyer or lender relies on the closing services of a title agent or company, they face the risk that the agent may engage in dishonest practices, such as diverting funds designated for the purchase of the property.

The CPL acts as a safeguard, ensuring that if the closing agent misappropriates funds or fails to follow proper closing procedures, the title insurance company will cover any losses incurred by the parties protected under the CPL. By providing this form of protection, the CPL fosters trust and confidence in the real estate transaction process, facilitating smoother transactions for buyers, sellers, and lenders alike.

The other choices focus on aspects of real estate that the CPL does not specifically address, such as property condition warranties, proper title transfer procedures, and property appraisal guarantees, which are handled through other means or documents in a real estate transaction.