HB5409 Engrossed LRB096 18556 RPM 33938 b

1     AN ACT concerning insurance.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Title Insurance Act is amended by changing
5 Sections 3 and 16 and by adding Section 16.1 as follows:
 
6     (215 ILCS 155/3)  (from Ch. 73, par. 1403)
7     Sec. 3. As used in this Act, the words and phrases
8 following shall have the following meanings unless the context
9 requires otherwise:
10     (1) "Title insurance business" or "business of title
11 insurance" means:
12         (A) Issuing as insurer or offering to issue as insurer
13     title insurance; and
14         (B) Transacting or proposing to transact one or more of
15     the following activities when conducted or performed in
16     contemplation of or in conjunction with the issuance of
17     title insurance;
18             (i) soliciting or negotiating the issuance of
19         title insurance;
20             (ii) guaranteeing, warranting, or otherwise
21         insuring the correctness of title searches for all
22         instruments affecting titles to real property, any
23         interest in real property, cooperative units and

 

 

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1         proprietary leases, and for all liens or charges
2         affecting the same;
3             (iii) handling of escrows, settlements, or
4         closings;
5             (iv) executing title insurance policies;
6             (v) effecting contracts of reinsurance;
7             (vi) abstracting, searching, or examining titles;
8         or
9             (vii) issuing insured closing letters or closing
10         protection letters;
11         (C) Guaranteeing, warranting, or insuring searches or
12     examinations of title to real property or any interest in
13     real property, with the exception of preparing an
14     attorney's opinion of title; or
15         (D) Guaranteeing or warranting the status of title as
16     to ownership of or liens on real property and personal
17     property by any person other than the principals to the
18     transaction; or
19         (E) Doing or proposing to do any business substantially
20     equivalent to any of the activities listed in this
21     subsection, provided that the preparation of an attorney's
22     opinion of title pursuant to paragraph (1)(C) is not
23     intended to be within the definition of "title insurance
24     business" or "business of title insurance".
25     (1.5) "Title insurance" means insuring, guaranteeing,
26 warranting, or indemnifying owners of real or personal property

 

 

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1 or the holders of liens or encumbrances thereon or others
2 interested therein against loss or damage suffered by reason of
3 liens, encumbrances upon, defects in, or the unmarketability of
4 the title to the property; the invalidity or unenforceability
5 of any liens or encumbrances thereon; or doing any business in
6 substance equivalent to any of the foregoing. "Warranting" for
7 purpose of this provision shall not include any warranty
8 contained in instruments of encumbrance or conveyance. Title
9 insurance is a single line form of insurance, also known as
10 monoline. An attorney's opinion of title pursuant to paragraph
11 (1)(C) is not intended to be within the definition of "title
12 insurance".
13     (2) "Title insurance company" means any domestic company
14 organized under the laws of this State for the purpose of
15 conducting the business of title insurance and any title
16 insurance company organized under the laws of another State,
17 the District of Columbia or foreign government and authorized
18 to transact the business of title insurance in this State.
19     (3) "Title insurance agent" means a person, firm,
20 partnership, association, corporation or other legal entity
21 registered by a title insurance company and authorized by such
22 company to determine insurability of title in accordance with
23 generally acceptable underwriting rules and standards in
24 reliance on either the public records or a search package
25 prepared from a title plant, or both, and authorized by such
26 title insurance company in addition to do any of the following:

 

 

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1 act as an escrow agent pursuant to subsections (f), (g), and
2 (h) of Section 16 of this Act, solicit title insurance, collect
3 premiums, or issue title insurance commitments reports,
4 binders or commitments to insure and policies, and endorsements
5 of the title insurance company; in its behalf, provided,
6 however, the term "title insurance agent" shall not include
7 officers and salaried employees of any title insurance company.
8     (4) "Producer of title business" is any person, firm,
9 partnership, association, corporation or other legal entity
10 engaged in this State in the trade, business, occupation or
11 profession of (i) buying or selling interests in real property,
12 (ii) making loans secured by interests in real property, or
13 (iii) acting as broker, agent, attorney, or representative of
14 natural persons or other legal entities that buy or sell
15 interests in real property or that lend money with such
16 interests as security.
17     (5) "Associate" is any firm, association, partnership,
18 corporation or other legal entity organized for profit in which
19 a producer of title business is a director, officer, or partner
20 thereof, or owner of a financial interest, as defined herein,
21 in such entity; any legal entity that controls, is controlled
22 by, or is under common control with a producer of title
23 business; and any natural person or legal entity with whom a
24 producer of title business has any agreement, arrangement, or
25 understanding or pursues any course of conduct the purpose of
26 which is to evade the provisions of this Act.

 

 

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1     (6) "Financial interest" is any ownership interest, legal
2 or beneficial, except ownership of publicly traded stock.
3     (7) "Refer" means to place or cause to be placed, or to
4 exercise any power or influence over the placing of title
5 business, whether or not the consent or approval of any other
6 person is sought or obtained with respect to the referral.
7     (8) "Escrow Agent" means any title insurance company or any
8 title insurance agent, including independent contractors of
9 either, acting on behalf of a title insurance company which
10 receives deposits, in trust, of funds or documents, or both,
11 for the purpose of effecting the sale, transfer, encumbrance or
12 lease of real property to be held by such escrow agent until
13 title to the real property that is the subject of the escrow is
14 in a prescribed condition. An escrow agent conducting closings
15 shall be subject to the provisions of paragraphs (1) through
16 (4) of subsection (e) of Section 16 of this Act.
17     (9) "Independent Escrowee" means any firm, person,
18 partnership, association, corporation or other legal entity,
19 other than a title insurance company or a title insurance
20 agent, which receives deposits, in trust, of funds or
21 documents, or both, for the purpose of effecting the sale,
22 transfer, encumbrance or lease of real property to be held by
23 such escrowee until title to the real property that is the
24 subject of the escrow is in a prescribed condition. Federal and
25 State chartered banks, savings and loan associations, credit
26 unions, mortgage bankers, banks or trust companies authorized

 

 

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1 to do business under the Illinois Corporate Fiduciary Act,
2 licensees under the Consumer Installment Loan Act, real estate
3 brokers licensed pursuant to the Real Estate License Act of
4 2000, as such Acts are now or hereafter amended, and licensed
5 attorneys when engaged in the attorney-client relationship are
6 exempt from the escrow provisions of this Act. "Independent
7 Escrowee" does not include employees or independent
8 contractors of a title insurance company or title insurance
9 agent authorized by a title insurance company to perform
10 closing, escrow, or settlement services.
11     (10) "Single risk" means the insured amount of any title
12 insurance policy, except that where 2 or more title insurance
13 policies are issued simultaneously covering different estates
14 in the same real property, "single risk" means the sum of the
15 insured amounts of all such title insurance policies. Any title
16 insurance policy insuring a mortgage interest, a claim payment
17 under which reduces the insured amount of a fee or leasehold
18 title insurance policy, shall be excluded in computing the
19 amount of a single risk to the extent that the insured amount
20 of the mortgage title insurance policy does not exceed the
21 insured amount of the fee or leasehold title insurance policy.
22     (11) "Department" means the Department of Financial and
23 Professional Regulation.
24     (12) "Secretary" means the Secretary of Financial and
25 Professional Regulation.
26     (13) "Insured closing letter" or "closing protection

 

 

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1 letter" means an indemnification or undertaking to a party to a
2 real estate transaction, from a principal such as a title
3 insurance company or similar entity, setting forth in writing
4 the extent of the principal's responsibility for intentional
5 misconduct or errors in closing the real estate transaction on
6 the part of a settlement agent, such as a title insurance agent
7 or other settlement service provider.
8     (14) "Residential real property" means a building or
9 buildings consisting of one to 4 residential units or a
10 residential condominium unit where at least one of the
11 residential units or condominium units is occupied or intended
12 to be occupied as a residence by the purchaser or borrower, or
13 in the event that the purchaser or borrower is the trustee of a
14 trust, by a beneficiary of that trust.
15 (Source: P.A. 94-893, eff. 6-20-06; 95-570, eff. 8-31-07.)
 
16     (215 ILCS 155/16)  (from Ch. 73, par. 1416)
17     Sec. 16. Title insurance agents.
18     (a) No person, firm, partnership, association, corporation
19 or other legal entity shall act as or hold itself out to be a
20 title insurance agent unless duly registered by a title
21 insurance company with the Secretary.
22     (b) Each application for registration shall be made on a
23 form specified by the Secretary and prepared in duplicate by
24 each title insurance company which the agent represents. The
25 title insurance company shall retain the copy of the

 

 

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1 application and forward the original to the Secretary with the
2 appropriate fee.
3     (c) Every applicant for registration, except a firm,
4 partnership, association or corporation, must be 18 years or
5 more of age.
6     (d) Registration shall be made annually by a filing with
7 the Secretary; supplemental registrations for new title
8 insurance agents to be added between annual filings shall be
9 made from time to time in the manner provided by the Secretary;
10 registrations shall remain in effect unless revoked or
11 suspended by the Secretary or voluntarily withdrawn by the
12 registrant or the title insurance company.
13     (e) Funds deposited in connection with any escrows,
14 settlements, or closings shall be deposited in a separate
15 fiduciary trust account or accounts in a bank or other
16 financial institution insured by an agency of the federal
17 government unless the instructions provide otherwise. The
18 funds shall be the property of the person or persons entitled
19 thereto under the provisions of the escrow, settlement, or
20 closing and shall be segregated by escrow, settlement, or
21 closing in the records of the escrow agent. The funds shall not
22 be subject to any debts of the escrowee and shall be used only
23 in accordance with the terms of the individual escrow,
24 settlement, or closing under which the funds were accepted.
25     Interest received on funds deposited with the escrow agent
26 in connection with any escrow, settlement, or closing shall be

 

 

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1 paid to the depositing party unless the instructions provide
2 otherwise.
3     The escrow agent shall maintain separate records of all
4 receipts and disbursements of escrow, settlement, or closing
5 funds.
6     The escrow agent shall comply with any rules adopted by the
7 Secretary pertaining to escrow, settlement, or closing
8 transactions.
9     (f) A title insurance agent shall not act as an escrow
10 agent in a nonresidential real property transaction where the
11 amount of settlement funds on deposit with the escrow agent is
12 less than $2,000,000 or in a residential real property
13 transaction unless the title insurance agent, title insurance
14 company, or another authorized title insurance agent has
15 committed for the issuance of title insurance in that
16 transaction and the title insurance agent is authorized to act
17 as an escrow agent on behalf of the title insurance company for
18 which the commitment for title insurance has been issued. The
19 authorization under the preceding sentence shall be given
20 either (1) by an agency contract with the title insurance
21 company which contract, in compliance with the requirements set
22 forth in subsection (g) of this Section, authorizes the title
23 insurance agent to act as an escrow agent on behalf of the
24 title insurance company or (2) by a closing protection letter
25 in compliance with the requirements set forth in Section 16.1
26 of this Act, issued by the title insurance company to the

 

 

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1 seller, buyer, borrower, and lender. A closing protection
2 letter shall not be issued by a title insurance agent. The
3 provisions of this subsection (f) shall not apply to the
4 authority of a title insurance agent to act as an escrow agent
5 under subsection (g) of Section 17 of this Act.
6     (g) If an agency contract between the title insurance
7 company and the title insurance agent is the source of the
8 authority under subsection (f) of this Section for a title
9 insurance agent to act as escrow agent for a real property
10 transaction, then the agency contract shall provide for no less
11 protection from the title insurance company to all parties to
12 the real property transaction than the title insurance company
13 would have provided to those parties had the title insurance
14 company issued a closing protection letter in conformity with
15 Section 16.1 of this Act.
16     (h) A title insurance company shall be liable for the acts
17 or omissions of its title insurance agent as an escrow agent if
18 the title insurance company has authorized the title insurance
19 agent under subsections (f) and (g) of this Section 16 and only
20 to the extent of the liability undertaken by the title
21 insurance company in the agency agreement or closing protection
22 letter. The liability, if any, of the title insurance agent to
23 the title insurance company for acts and omissions of the title
24 insurance agent as an escrow agent shall not be limited or
25 otherwise modified because the title insurance company has
26 provided closing protection to a party or parties to a real

 

 

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1 property transaction escrow, settlement, or closing. The
2 escrow agent shall not charge a fee for protection provided by
3 a title insurance company to parties to real property
4 transactions under subsections (f) and (g) of this Section 16
5 and Section 16.1, but shall collect from the parties the fee
6 charged by the title insurance company under Section 16.1 of
7 this Act and shall promptly remit the fee to the title
8 insurance company. The title insurance company may charge the
9 parties a reasonable fee for protection provided pursuant to
10 subsections (f) and (g) of this Section 16 and shall not pay
11 any portion of the fee to the escrow agent. The payment of any
12 portion of the fee to the escrow agent by the title insurance
13 company, shall be deemed a prohibited inducement or
14 compensation in violation of Section 24 of this Act.
15 (Source: P.A. 94-893, eff. 6-20-06.)
 
16     (215 ILCS 155/16.1 new)
17     Sec. 16.1. Closing or settlement protection.
18     (a) Notwithstanding the provisions of item (iii) of
19 paragraph (B) of subsection (1) and subsections (3) and (8) of
20 Section 3 and Section 16 of this Act, a title insurance company
21 or title insurance agent is not authorized to act as an escrow
22 agent in a nonresidential real property transaction where the
23 amount of settlement funds on deposit with the escrow agent is
24 less than $2,000,000 or in a residential real property
25 transaction unless as part of the same transaction a

 

 

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1 commitment, binder, or title insurance policy and closing
2 protection letters protecting the buyer's or borrower's,
3 lender's, and seller's interests have been issued by the title
4 insurance company on whose behalf the commitment, binder, or
5 title insurance policy has been issued. Closing protection
6 letters are not required when the authorization for the title
7 insurance agent to act as an escrow agent is given by an agency
8 contract with the title insurance company pursuant to
9 subsections (f), (g), and (h) of Section 16 of this Act, but
10 shall be issued by the title insurance company upon the request
11 of a party to a nonresidential real property transaction where
12 the amount of settlement funds on deposit with the escrow agent
13 is less than $2,000,000 or in a residential real property
14 transaction.
15     (b) Unless otherwise agreed to between a title insurance
16 company and a protected person or entity, a closing protection
17 letter under this Section shall indemnify all parties to a real
18 property transaction against actual loss, not to exceed the
19 amount of the settlement funds deposited with the escrow agent.
20 The closing protection letter shall in any event indemnify all
21 parties to a real property transaction when such losses arise
22 out of:
23         (1) failure of the escrow agent to comply with written
24     closing instructions to the extent that they relate to (A)
25     the status of the title to an interest in land or the
26     validity, enforceability, and priority of the lien of a

 

 

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1     mortgage on an interest in land, including the obtaining of
2     documents and the disbursement of funds necessary to
3     establish the status of title or lien or (B) the obtaining
4     of any other document specifically required by a party to
5     the real property transaction, but only to the extent that
6     the failure to obtain such other document affects the
7     status of the title to an interest in land or the validity,
8     enforceability, and priority of the lien of a mortgage on
9     an interest in land; or
10         (2) fraud, dishonesty, or negligence of the escrow
11     agent in handling funds or documents in connection with
12     closings to the extent that the fraud, dishonesty, or
13     negligence relates to the status of the title to the
14     interest in land or to the validity, enforceability, and
15     priority of the lien of a mortgage on an interest in land
16     or, in the case of a seller, to the extent that the fraud,
17     dishonesty, or negligence relates to funds paid to or on
18     behalf of, or which should have been paid to or on behalf
19     of, the seller.
20     (c) The indemnification under a closing protection letter
21 may include limitations on the liability of the title insurance
22 company for any of the following:
23         (1) Failure of the escrow agent to comply with closing
24     instructions that require title insurance protection
25     inconsistent with that set forth in the title insurance
26     commitment for the real property transaction. Instructions

 

 

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1     that require the removal of specific exceptions to title or
2     compliance with the requirements contained in the title
3     insurance commitment shall not be deemed to be
4     inconsistent.
5         (2) Loss or impairment of funds in the course of
6     collection or while on deposit with a bank due to bank
7     failure, insolvency, or suspension, except such as shall
8     result from failure of the escrow agent closer to comply
9     with written closing instructions to deposit the funds in a
10     bank that is designated by name by a party to the real
11     property transaction.
12         (3) Mechanics' and materialmen's liens in connection
13     with sale, purchase, lease, or construction loan
14     transactions, except to the extent that protection against
15     such liens is afforded by a title insurance commitment or
16     policy issued by the escrow agent.
17         (4) Failure of the escrow agent to comply with written
18     closing instructions to the extent that such instructions
19     require a determination by the escrow agent of the
20     validity, enforceability, or effectiveness of any document
21     described in subitem (B) of item (1) of subsection (b) of
22     this Section.
23         (5) Fraud, dishonesty, or negligence of an employee,
24     agent, attorney, or broker, who is not also the escrow
25     agent or an independent contract closer of the escrow
26     agent, of the indemnified party to the real property

 

 

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1     transaction.
2         (6) The settlement or release of any claim by the
3     indemnified party to the real property transaction without
4     the written consent of the title insurance company.
5         (7) Any matters created, suffered, assumed, or agreed
6     to by, or known to, the indemnified party to the real
7     property transaction without the written consent of the
8     title insurance company.
9     The closing protection letter may also include reasonable
10 additional provisions concerning the dollar amount of
11 protection, provided such limit is not less than the amount
12 deposited with the escrow agent, arbitration, subrogation,
13 claim notices, and other conditions and limitations that do not
14 materially impair the protection required by this Section 16.1.
15     (d) The entire fee for the closing protection letter shall
16 be remitted by the title insurance agent to the title insurance
17 company. Title insurance agents shall not charge the parties
18 any additional amount for closing protection letters issued
19 under this Section.
20     (e) This Section shall not apply to the authority of a
21 title insurance company and title insurance agent to act as an
22 escrow agent under subsection (g) of Section 17 of this Act.