Public Act 100-0485 (IL)

Closing Protection Letters

Statutes Amended: 215 ILCS 155/3 and 155/17

Effective Date: September 8, 2017

Public Act 100-0485 amends the Title Insurance Act by changing Sections 3 and 17 and by adding Section 17.1. The amendment extends the definition of "Insured closing letter" or "closing protection letter" subsection (13) of Section 3 to include "or an indemnification or undertaking given by a title insurance company or an independent escrowee setting forth in writing the extent of the title insurance company's or independent escrowee's responsibility to a party to a real property transaction which indemnifies the party against the intentional misconduct or errors in closing the real property transaction on the part of the title insurance company or independent escrowee ... subject to subsection (h) Section 17, and Section 17.1" of that Act.

Pursuant to Section 17.1 of this Act, an independent escrowee may "issue an insured closing letter if the independent escrowee:

(1) Satisfies the Secretary that it has a minimum capital and surplus of $2,000,000. The Secretary may provide the forms and standards for this purpose by rule. This paragraph applies only to independent escrowees licensed under this Act for the first time on or after the effective date of this amendatory Act of the 100th General Assembly.

(2) Files with and has approved by the Secretary proof of a fidelity bond in the minimum amount of $2,000,000 per occurrence.

(3) Establishes and maintains a statutory closing protection letter reserve for the protection of parties named in warranties of services consisting of a sum of 25% of the closing protection letter revenue received by the independent escrowee on or after the effective date of this amendatory Act of the 100th General Assembly. The reserve shall be reported as a liability of the independent escrowee in its financial statements. Amounts placed in the statutory closing protection letter reserve shall be deducted in determining the net profit of the independent escrowee for the year. Except as provided in this subsection, assets in value equal to the statutory closing protection letter reserve are not subject to distribution among creditors, stockholders, or other owners of the independent escrowee until all claims of parties named in warranties of services have been paid in full and discharged.

(4) Releases from the statutory closing protection letter reserve a sum equal to 10% of the amount added to the reserve during a calendar year on July 1 of each of the 5 years following the year in which the sum was added and releases from the statutory closing protection letter reserve a sum equal to 3 1/3% of the amount added to the reserve during that year on each succeeding July 1 until the entire amount for that year has been released.

Section 17.1(a) places limitations on actions by an independent escrowee in a nonresidential real property transaction (where the settlement funds on deposit is less than $2,000,000) and residential real property transaction (where the closing protection letters have been issued by the independent escrowee), unless both are a part of the same transaction.Pursuant to Section 17.1(b), unless there is an agreement between an independent escrowee and a protected person or entity, a closing protection letter shall indemnify all parties to a real property traction against actual loss that is not exceed the amount in the Settlement fund when the loss arises out of the following:

(1) failure of the independent escrowee 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 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; or

(2) fraud, dishonesty, or negligence of the independent escrowee 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.

Section 17.1(c) may place further limits on the indemnification of the independent escrowee under a closing protection letter for any of the following:

(1) Failure of the independent escrowee to comply with closing instructions that require title insurance protection inconsistent with that set forth in the title insurance commitment for the real property transaction. Instructions that require the removal of specific exceptions to 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 independent escrowee closer to comply with written closing instructions to deposit the funds in a bank that is designated by name by a 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 issued by the title insurance agent or title insurance company.

(4) Failure of the independent escrowee to comply with written closing instructions to the extent that such instructions require a determination by the independent escrowee of the validity, enforceability, or effectiveness of any document described in item (B) of paragraph (1) of subsection (b) of this Section.

(5) Fraud, dishonesty, or negligence of an employee, agent, attorney, or broker, who is not also the independent escrowee or an independent contract closer of the independent escrowee, 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 independent escrowee.

(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 independent escrowee.

The Secretary will adopt and amend rules, as needed, to ensure that the amendments are consistent with the federal Real Estate Settlement and Procedures Act and Section 24 of this Act.

Bill Number: 
HB 2702
Public Act or Public Law Number: 
Public Act 100-0485
By: ATG Underwriting Department | Posted on: Wed, 04/18/2018 - 12:28pm