The closing attorney said all requirements were met. Now nobody wants to pay the tab
Fraud exclusions in Closing Protection Letters can leave lenders holding major losses, a North Carolina court ruled in a $510,000 identity theft case.
The case out of North Carolina should make every mortgage professional take a closer look at what those Closing Protection Letters actually cover when things go sideways.
Here's what happened. In fall 2024, Cardinal Financial agreed to lend $510,000 to a Charlotte homeowner named Charles Strauss. Standard transaction, right? They picked Investors Title Insurance Company to handle the title work and tapped Shope Krohn Attorneys at Law as the closing firm.
Investors Title issued Cardinal a Closing Protection Letter promising to cover losses from the closing. Cardinal sent over instructions telling Shope Krohn to verify the borrower's identity. The firm said no problem, signed off that everything checked out, and the deal closed on November 7, 2024.
The closing attorney wired the loan proceeds to a Wildflower Realty bank account that Cardinal had provided. Within a week, someone named Merrilee Anderson emptied that account with a flurry of checks. The money vanished.
Then in December, the real Charles Strauss called the North Carolina Department of Justice. He had no idea anyone had taken out a loan on his house. He never signed anything, never met with Cardinal, and definitely was not in Georgia when someone supposedly put his signature on a deed of trust in front of a notary.
Turns out the whole thing was a scam. Fraudsters had bought a fake notary stamp with the name Wanda Wingfield and were running the same con across the country. That stamp has popped up in at least 13 cases spanning nine states, from California to Michigan to Florida.
Cardinal went to court last August asking Investors Title to cover the loss under the Closing Protection Letter. The lender argued that Shope Krohn failed to verify the borrower's identity like they were supposed to, and the CPL promised coverage for losses from closing attorney mistakes.
Not so fast, said Investors Title. Read the fine print.
On February 9, 2026, Judge Kenneth Bell agreed with the insurer on the key issue. The Closing Protection Letter had clear language saying it does not cover losses from fraud, identity theft, or money diverted to the wrong account when someone other than the title company or closing attorney commits the fraud.
Cardinal tried arguing that the closing attorney's failure was the only cause of the loss. The judge was not buying it. Sure, maybe Shope Krohn should have caught the fake identities, but without the underlying fraud, there would not have been a loss at all. You cannot call the attorney's conduct the sole cause when fraudsters were running the whole show.
That means the fraud exclusion applies, and Cardinal cannot recover under the breach of contract claim.
The lender did catch one break. Cardinal also asked the court to order Investors Title to issue the title policy that Shope Krohn promised to deliver. The judge let that claim proceed, saying Cardinal made a decent case that all the requirements were met and the closing attorney certified everything was good to go.
The court also allowed Cardinal's bad faith and unfair trade practices claims to move forward for now, though the judge made clear those will face tough scrutiny later once everyone exchanges documents and evidence.
Meanwhile, Shope Krohn fired back with its own lawsuit, dragging in Anderson, Wildflower Realty, and even their malpractice carrier, Lawyers Mutual. The firm also pointed fingers at Cardinal, saying lenders have their own duty to verify who they are actually lending money to.
Anderson, a 74-year-old from Michigan, told the court she is a victim too, claiming she got caught up in an online romance scam. She asked for a free lawyer. The judge said sorry, no can do in civil cases, but gave her more time to respond.
The case grinds on, with everyone fighting over who gets stuck with the $510,000 tab.
For mortgage professionals, the takeaway is stark. Those Closing Protection Letters have limits, and fraud exclusions can shut the door on coverage even when your closing team misses red flags. The question of who bears the risk when sophisticated scammers infiltrate a transaction remains very much up for grabs.
