The real estate laws are state laws. I picked Virginia as an example.
In Virginia this is regulated by the state corporation commission. The position is Real Estate settlement Agent.
Registration/Licensing related questions
1.Who is required to be registered?
Any person, other than the lender, seller, purchaser or borrower, who
conducts the settlement conference and receives or handles money, must
be registered. See Virginia Code § 55.1-1000 and Chapter 395, Rules
Governing Settlement Agents, Regulation 14VAC5-395-10 through
There is a procedure for registering
Apply for a Virginia Title Insurance Agent or Agency license.
Obtain an appointment with an insurer in Virginia.
Secure each of the following insurance coverages. On the RESA
application you must attest that you have and will keep the following
for as long as you are a Real Estate Settlement Agent:
An Errors and Omissions insurance policy (E&O) or Malpractice policy with a limit of at least $250,000
A Blanket Fidelity Bond or Employee Dishonesty insurance policy in the amount of at least $100,000 per occurrence or claim. Settlement
agents with no employees except the owners, partners, shareholders, or
members may request a waiver of this requirement on their RESA
application or submit the Waiver Form later.
Purchase a Surety
Bond in the amount of $200,000 from an authorized surety company. The
surety company must use the official Surety Bond Form.
as a Real Estate Settlement Agent via Sircon. On Sircon, the
application is referred to as a Title Settlement Agency/Agent
application. The nonrefundable application fee is $100 for an agency
and $35 for an agent. Note: Agencies must register their business with
the Clerk’s Office of the Virginia SCC before submitting their RESA
Mail the original Surety Bond to the following
The state also provides a way to verify the license of an agent, and lookup any complaints.
Specifically addressing the 4 questions:
- So what is the protection does a seller have against settlement company.
The state licensing and the requirement for insurance and a bond. They are required to have this coverage.
A second way of asking could be How to verify that settlement company is not a fraud ?
They are licensed by the state. The government has a way for you to check on their history You should be able to see the history of complaints against the company. When deciding to use a settlement company you need to check the information they give you regarding their license.
a third way for same question. How to verify the legitimacy of settlement company ?
Again the state government through the appropriate licensing agency.
A fourth way. Will my title insurance cover the loss if during the sale, the settlement company abscond with money.
There are two title insurance policies. The one that is required by the lender is only there to protect the lender. If they get their money they don't care about the rest of the transaction. So if the settlement attorney sends the payoff money to the old lender they are fine.
The second type of policy is optional and protects the homeowner. You will have to review the documents to see when coverage stops, and what protection do they have regarding the equity.