Proof of ownership is evidence that title is marketable. A deed by itself is not considered sufficient evidence of ownership in Illinois. Even though a warranty deed conveys the grantor’s interest, it contains no proof of the condition of the grantor’s title at the time of the conveyance. The grantee needs some assurance that he actually is acquiring ownership and that the title is marketable.
Certificate of Title
A certificate of title is a statement of opinion regarding title status on the date the certificate is issued. A certificate of title is not a full guarantee of ownership. Rather, it certifies the condition of the title’s history based on an actual examination of the public records – a title search. The certificate may be prepared by a title company, a licensed abstractor, or an attorney. An owner, a mortgage lender, or a buyer may request the certificate.
Although a certificate of title is used as evidence of ownership, it is not perfect. Unrecorded liens or rights of parties in possession cannot be discovered by a search of the public records. Hidden defects, such as transfers involving forged documents, incorrect marital information, incompetent parties, minors, or fraud cannot be detected. A certificate offers no defense against these defects because they are unknown. The person who prepares the certificate is liable only for negligence in preparing the certificate.
Abstract and Attorney’s Opinion of Title
An abstract and attorneys opinion of title are used in some areas, including Illinois, as evidence of title. This is an opinion of title status based on a review of the abstract by an attorney. Similar to a certificate of title, the opinion of title does not protect against defects that cannot be discovered from the public records. Many buyers purchase title insurance to defend the title from these defects.
Title Insurance
Title insurance is a contract (Insurance Policy) under which the policyholder (Buyer) is protected from losses arising from defects in the title. A title insurance company determines whether the title is insurable based on a review of the public records. If so, a policy is issued. Unlike other insurance policies that insure against future losses, title insurance protects the insured from an event that occurred before the policy was issued. Title insurance is considered the best defense (Assurance) of title, since the title insurance company will defend any lawsuit based on an insurable defect and pay claims if the title proves to be defective.
After examining the public records, the title company usually issues what may be called a preliminary report of title or a commitment to issue a title policy. This describes the type of policy that will be issued
and includes:
The premium for the policy is paid once, at closing. The maximum loss for which the company may be liable cannot exceed the face amount of the policy. When a title company makes a payment to settle a claim covered by a policy, the company generally acquires the right to any remedy or damages available to the insured. This right is called subrogation. An exception or defect noted in the title comÂmitment may be waived or endorsed by the title company with the submission of credible supporting evidence. The title company may charge additional fees for the waiver or endorsement.
A title insurance policy is the most commonly used evidence (Assurance) that an owner of
Illinois real property tenders to a prospective purchaser or lender as proof of good title in order to induce the buyer to purchase the property.
Careful listing agents often request a copy of the first page of a title insurance policy for their files so as to be certain those selling a property have the right to do so.
The Illinois Title Insurance Act requires that parties to a “contract for the sale of residential real property who are obligated to provide and pay for title insurance have the right to choose the title insurance company and title insurance agent that will provide the title insurance.”
“No lender or producer of title business, as a condition of making the loan or providing services of any kind, require a party to a residential sales contract and who is obligated by that contract to furnish and pay for title insurance at their expense, to procure title insurance from a title insurance company that is not chosen by the party paying for the insurance.” Statute ILCS 155/3
Owner’s Title Insurance Policy
Coverage Exactly which defects the title company will defend depends on the type of policy. A standard coverage policy normally insures the title as it is known from the public records. In addition, the standard policy insures against such hidden defects as forged documents, conveyances by incompetent grantors, incorrect marital statements, and improperly delivered deeds.
Extended coverage, as provided by an American Land Title Association (ALTA) policy, includes the protections of a standard policy plus additional protections. Most lenders require extended coverage title policies.
An extended or ALTA policy protects a homeowner against defects that may be discovered by inspection of the property (i.e., rights of parties in possession, examination of a survey, and certain unrecorded liens). An extended title insurance policy would offer the buyer protection against secret liens, such as unrecorded mechanics’ liens, and also is required by most lenders.
Title insurance does not offer guaranteed protection against all defects. A title company will not insure a bad title or offer protection against defects that clearly appear in a title search. The policy generally names certain uninsurable losses, called exclusions. These include zoning ordinances, restrictive covenants, easeÂments, certain water rights, and current taxes and special assessments.
Lender’s (Buyer’s) Title Insurance Policy
A lender’s policy is issued for the benefit of the mortgage company. This policy is usually paid for by the buyer at the closing. The amount of the coverage depends on the amount of the mortgage loan. As the loan balance is reduced, the coverage decreases.
