SB3374 96TH GENERAL ASSEMBLY

LRB096 17642 RPM 33000 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
SB3374

Introduced 2/10/2010, by Sen. William R. Haine

SYNOPSIS AS INTRODUCED:

215 ILCS 155/16.1 new

Amends the Title Insurance Act. Provides that a title insurance company or title insurance agent is not authorized to act as an escrow agent in a residential real property transaction unless a commitment, binder, or title insurance policy and closing protection letters have been issued. Provides that closing protection letters shall indemnify the parties in a real property transaction against actual loss, not to exceed the amount of the settlement funds deposited with the escrow agent, when the loss arises out of certain circumstances. Sets forth the circumstances under which indemnification under a closing protection letter may include limitations on the liability of the title insurance. Provides that when a title insurance company reimburses the indemnified party, the company shall be subrogated to all the rights and remedies that the indemnified party would have had. Provides that an indemnified party may demand arbitration for a claim if the title insurance policy for the transaction is less than $2,000,000; if the policy is more than $2,000,000, then arbitration must be agreed to by both the title insurance company and the indemnified party. Makes other changes. Effective immediately.

A BILL FOR

AN ACT concerning insurance.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Title Insurance Act is amended by adding Section 16.1 as follows:

(215 ILCS 155/16.1 new)

Sec. 16.1. Closing or settlement protection.

(a) Notwithstanding the provisions of this Act set forth in subparagraph (iii) of paragraph (B) of item (1) of Section 3, items (3) and (8) of Section 3, and Section 16, a title insurance company or title insurance agent is not authorized to act as an escrow agent in a residential real property transaction unless, as part of the same transaction, a commitment, binder, or title insurance policy and closing protection letters protecting the buyer's or borrower's and the seller's interests have been issued by the title insurance company on whose behalf the commitment, binder, or title insurance policy has been issued.

(b) Closing protection letters under this Section shall indemnify the parties in a real property transaction against actual loss, not to exceed the amount of the settlement funds deposited with the escrow agent, when the loss arises out of:

(1) failure of the escrow agent to comply with written closing instructions to the extent that they relate to (A) the status of the title to an interest in land or the validity, enforceability, and priority of the lien of a mortgage on an interest in land, including the obtaining of documents and the disbursement of funds necessary to establish the status of the title or lien or (B) the obtaining of any other document specifically required by a party to the real property transaction, but only to the extent that the failure to obtain such other document affects the status of the title to an interest in land or the validity, enforceability, and priority of the lien of a mortgage on an interest in land and not to the extent that the written closing instructions require a determination of the validity, enforceability, or the effectiveness of the other document; or

(2) fraud, dishonesty, or negligence of the escrow agent in handling funds or documents in connection with closings to the extent that the fraud, dishonesty, or negligence relates to the status of the title to the interest in land or to the validity, enforceability, and priority of the lien of a mortgage on an interest in land or, in the case of a seller, to the extent that the fraud, dishonesty, or negligence relates to funds paid to or on behalf of, or which should have been paid to or on behalf of, the seller.

(c) The indemnification under a closing protection letter may include limitations on the liability of the title insurance company for any of the following:

(1) Failure of the escrow agent to comply with closing instructions that require title insurance protection inconsistent with that set forth in the title insurance commitment. Instructions that require the removal of specific exceptions to the title or compliance with the requirements contained in the title insurance commitment shall not be deemed to be inconsistent.

(2) Loss or impairment of funds in the course of collection or while on deposit with a bank due to bank failure, insolvency, or suspension, except such as shall result from failure of the escrow agent to comply with written closing instructions to deposit the funds in a bank that is designated by name by the indemnified party to the real property transaction.

(3) Mechanics' and materialmen's liens in connection with sale, purchase, lease, or construction loan transactions, except to the extent that protection against such liens is afforded by a title insurance commitment or policy.

(4) Defects, liens, encumbrances, or other matters in connection with a party's purchase, lease, or loan transactions, except to the extent that protection against those defects, liens, encumbrances, or other matters is afforded by a policy of title insurance not inconsistent with the closing instructions.

(5) Fraud, dishonesty, or negligence of an employee, agent, attorney, or broker, who is not also the escrow agent, of the indemnified party to the real property transaction.

(6) The settlement or release of any claim by the indemnified party to the real property transaction without the written consent of the title insurance company.

(7) Any matters created, suffered, assumed, or agreed to by, or known to, the indemnified party to the real property transaction without the written consent of the title insurance company.

(d) When the title insurance company shall have reimbursed the indemnified party to the real property transaction pursuant to the closing protection letter, it shall be subrogated to all rights and remedies that the party would have had against any person or property had that party not been so reimbursed. Liability of the title insurance company for reimbursement shall be reduced to the extent that the indemnified party to the real property transaction knowingly and voluntarily impairs the value of this right of subrogation.

(e) The escrow agent is the title insurance company's agent only for the limited purpose of issuing title insurance policies. The escrow agent is not the title insurance company's agent for the purpose of providing other closing or settlement services. The title insurance company's liability for losses arising from any other closing or settlement services is strictly limited to the protection expressly provided in the closing protection letter. Any liability of the title insurance company for loss does not include liability for loss resulting from the negligence, fraud, or bad faith of any party to a real estate transaction other than an escrow agent, the lack of creditworthiness of any borrower connected with a real estate transaction, or the failure of any collateral to adequately secure a loan connected with a real estate transaction. However, this letter does not affect the title insurance company's liability with respect to its title insurance binders, commitments, or policies.

(f) Either the title insurance company or an indemnified party to the real property transaction may demand that any claim arising under the closing protection letter be submitted to arbitration pursuant to the Title Insurance Arbitration Rules of the American Land Title Association, unless an indemnified party to the real property transaction has a policy of title insurance for the applicable transaction with an amount of insurance greater than $2,000,000. If an indemnified party to the real property transaction has a policy of title insurance for the applicable transaction with an amount of insurance greater than $2,000,000, then a claim arising under the closing protection letter may be submitted to arbitration only when agreed to by both the title insurance company and the indemnified party.

(g) An indemnified party to the real property transaction must promptly send written notice of a claim under the closing protection letter to the title insurance company. The title insurance company shall not be liable for a loss if the written notice of a matter that the party believes is compensable under the closing protection letter is not received within 90 days after the date of closing.

(h) The protections set forth in the provisions of this Section extend only to real property transactions in this State. The closing protection letter may also include reasonable additional provisions concerning arbitration, subrogation, claim notices, and other conditions and limitations that do not materially impair the coverages required by this Section 16.1.

(i) Notwithstanding Section 19 of this Act, a title insurance company is expressly authorized to collect a charge for the issuance of closing protection letters. In such cases, the following provisions shall apply:

(1) The charge for issuance of a closing protection letter in a residential real property transaction indemnifying a buyer of an interest in real property or a lender, secured by a mortgage, including any other security instrument, of an interest in real property who purchases title insurance shall be not less than $25.

(2) The charge for issuance of a closing or settlement protection letter in a residential real property transaction indemnifying a seller of an interest in real property, a refinancing borrower, or a buyer who does not purchase title insurance shall be not less than $50.

(3) The entire charge for the closing protection letter shall be remitted by the title insurance agent to the title insurance company. Title insurance agents shall not charge the parties any additional amount for closing protection letters issued under this Section.

(j) Except as provided under this Section and Section 3 of this Act, a title insurance company shall not provide any other coverage that purports to indemnify against the improper acts or omissions of a person with regard to escrow, settlement, or closing services.

(k) This Section shall not apply to the authority of a title insurance company and title insurance agent to act as an escrow agent under subsection (g) of Section 17 of this Act.

Section 99. Effective date. This Act takes effect upon becoming law.