• Recent Developments in Real Estate Closing or Settlement Protection in the State of Maryland
  • May 31, 2012 | Author: James A. Sullivan
  • Law Firm: Miles & Stockbridge P.C. - Rockville Office
  • As established in the case, Proctor v. Metropolitan Money Store Corp., 579 F. Supp. 2d 724 (D. Md. 2008), employing an agent to issue title insurance does not, in and of itself, create an agency relationship as to the agent’s settlement and closing activities in Maryland. 

    Consequently, in the absence of a “closing protection letter,” or statutory language to the contrary, a title insurer generally is not liable for a settlement agent’s fraud or other misconduct in connection with a real estate closing.  The insured, rather than the title insurer, bears the risk of a loss caused by a settlement agent’s misconduct.  

    In February 2012, legislation was introduced in the Maryland General Assembly (Senate Bill 724 and House Bill 866 “Title Insurance—Closing or Settlement Protection”), to require title insurers to provide closing protection to insured “lenders, borrowers, sellers, or buyers” against certain losses resulting from an agent’s theft or misappropriation of settlement funds or the agent’s failure to comply with written closing instructions.  However, the General Assembly, failed to adopt the proposed legislation as written, and instead passed a law, which will go into effect on July 1, 2012, directing the Maryland Insurance Commissioner to study closing and settlement protection practices of the title insurance industry and to make recommendations for changes to the closing and settlement practices of the title insurance industry.  

    In conducting the study, the Insurance Commissioner will be required to consider, among other issues, defalcations reported to and discovered by the Maryland Insurance Administration; the extent to which on-site review by title insurers of their appointed title insurance producers have addressed the problem of defalcations; the availability of bonds, reinsurance and other coverage to protect title insurers against the theft, misappropriation or misuse of closing or settlement funds; and the manner in which other states are addressing closing or settlement protection.  

    The Insurance Commissioner is required to report her findings and recommendations to the Senate Finance Committee and the House Economic Matters Committee on or before December 1, 2012.  Until that time, it remains to be seen whether, and to what extent, title insurers may be required to provide closing or settlement protection in the state of Maryland.