NCS News Brief: New 2016 ALTA Commitment for Title Insurance

Download MEMO below and New 2016 ALTA Commitment HERE.

As of October 15, 2017, all Chicago Title offices in the State of Illinois are now issuing the 2016 ALTA commitment form adopted by ALTA.  This is a nationwide ALTA standard.  In states where you have not already been seeing this form, you will in the near future.  The use of the commitment has not changed in any fundamental way, but does contain certain revisions and important clarification regarding the obligations of all parties. 

On the first page of the new commitment, you will see at the top of the form that a new NOTICE provision has been incorporated as part of the commitment.  This NOTICE provision sets forth in the first paragraph that this ALTA commitment is only an offer to issue a title insurance policy and nothing more.  In addition, all claims under the commitment must be based solely in contract law.  In other words, the commitment is really just the initial step in the formation of a binding contract, that being the title insurance policy.

The second paragraph of the NOTICE provision states that the “commitment is not an abstract of title, report of the condition of title, legal opinion, opinion of title, or other representation of the status of title.”  Essentially the title commitment is not to be seen as an informational product and not a reflection as to the state of title, but rather a limitation on the obligation of the Title Company to that of issuing a policy.

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How Residential Surveys Affect Title Insurance and the Closing Process

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Surveys are an important part of both residential and commercial real estate transactions, both to the parties involved in the transaction and the title company insuring the land. Surveys provide many important pieces of information needed for the closing including, but not limited to, confirming the correct property is being sold or mortgaged and insured; confirming the dimensions of the property; showing any easements of record such as for utilities and access; and showing any encroachments that affect the property. Parties to the transaction rely on surveys, and the title company reviews them to confirm any exceptions of record are properly platted against the property along with any easements.

There are several types of surveys typically used, depending on the nature of the transaction. The most common surveys are as follows:

  • A Boundary Survey is acceptable for residential transactions as it accurately locates the boundaries of the land in question.
  • A Land Title/ ALTA Survey is acceptable for commercial transactions as it conforms to standards adopted by the American Land Title Association (referred to as an “ALTA” survey) and done to exacting requirements.
  • A Condominium Survey is surveying cubes of air, dimensions bound by floors, ceilings and walls of the living space. A condominium plat is part of the condominium declaration. A survey is not needed for subsequent transfers for a condominium unit as the original plat of survey for the condominium is attached to the recorded Declaration.

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Powers of Attorney

To download the article, click HERE.

Introduction

A power of attorney (“POA”) can be granted when an individual, referred to as a principal, appoints another individual, known as an agent, to act on his behalf. Usually this occurs when the principal cannot attend or carry out a specific purpose for himself. (“POA’s”) are granted in Illinois under 755 ILCS 45-1-1 et seq.

Types of Powers of Attorney

There are two types of POA:

  1. Statutory (“POA’s”), a model form of which is set forth in the Illinois (“POA”) Act; and
  2. Non-statutory (“POA’s”), which are all other types.

Statutory Form v. Non-Statutory Form

The difference between the two is that statutory (“POA’s”) can be used after the incapacitation or incompetency of the principal; a non-statutory cannot. However, neither statutory nor non-statutory (“POA’s”) survive the death of the principal.

Statutory (“POA’s”) can be limited in time. A principal can include a termination date or state that they do not want the (“POA”) to survive the incompetency of the principal. A statutory (“POA”) may thus state a beginning and/or end date.

Powers of Attorney and the Elderly

If a (“POA”) is being used for an elderly principal in the mortgage or sale of property, it is important to find out whether the principal is incapacitated or incompetent. There is also a concern about possible elder abuse or fraud. If the principal is incompetent, a title company can only rely on the (“POA”) if it was executed before the principal became incompetent.

Specified Powers

If a (“POA”) is being used for a person’s property, the title company must confirm that the powers granted or described are those for which the (“POA”) is being used. For example, if the principal is taking out a mortgage, the following powers should be permitted to the agent: “borrowing transactions” and “real estate transactions”. The powers granted to the agent must be specific. Any powers not granted can be struck out from the statutory form.

Requirements for a Power of Attorney

Every (“POA”) (statutory and non-statutory) must meet the following requirements:

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Covenants, Conditions, and Restrictions

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“Covenants, conditions, and restrictions” (hereafter CC&Rs) is a generic term for privately-created rules and regulations that frequently govern the use and improvement of real property.  They are a long-time staple of the real estate market, appearing regularly as exceptions to title.

The Basics – CC&Rs Defined

A covenant is an agreement or promise to do or not to do a particular act.  It is created by those words in a deed or other instrument that denote an agreement between the parties to that deed or instrument.

A restriction is a limitation on the use of the land. 

Land developers often utilize covenants and restrictions when subdividing land in order to establish uniform provisions concerning the use of the lots and the character, size, and location of the improvements to be constructed on the lots.  These restrictions are usually called general plan restrictions, and are normally set forth on a plat of subdivision, in the developer’s deeds to the initial lot purchasers, or in a declaration. (While probably not entirely synonymous, the terms “covenant” and “restriction” will be used interchangeably in this article.)

A condition in a deed, on the other hand, is a qualification of the estate granted.  It is a requirement of the conveyance. 

Building lines (also known as building setback lines) create areas of unobstructed light, air, and vision for the benefit of the public and for the benefit of all the owners upon whose property the restricted area is laid out.  They also secure uniformity in the appearance of the buildings, which helps keep property values high.

Building lines are a form of covenant.  A declaration of covenants, conditions, and restrictions containing building lines is a limitation on the use of the land.  The building line limits where the improvements may be placed on the land.  Most building lines are created by a plat of subdivision or in a declaration of CC&Rs.  These are privately created building lines.

Through the zoning power, municipalities and counties may create building lines as well.  These publicly-created building lines on occasion are different from the privately-created setbacks. 

The difference between these two types of setbacks lies in their enforcement.  Private building lines may be enforced by other owners in the subdivision.  Zoning setbacks may be enforced by the municipality or county.

Because building lines are a form of covenant, they will not be discussed separately in the remainder of this article.

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Title Insurance 101: Back to the Fundamental Principles

By Richard F. Bales
Chicago Title Insurance Company

The Old Days

In the late-eighteenth and early nineteenth centuries, attorneys began hiring abstractors to perform title work.  Abstractors would compile a history of the land, sometimes from the original land patent forward.  (A land patent is a land grant or deed from a sovereign entity.  In Illinois the examiner will sometimes see a land patent from the United States of America for a section of land or more.)  These abstractors would then issue this compiled history, together with an abstractor’s certificate.  The certificate would inform the proposed purchaser and the attorney as to the matters purported to be covered by the abstract.

Abstracts have not been used in the Chicago area for many years. Until a few years ago, though, they were occasionally prepared in the central and southern parts of the state.

But relying on an abstract had its disadvantages.  Consider the case of Watson v. Muirhead, 57 Pa. 161 (1868).   Watson wanted to buy some property in Philadelphia.  He hired Muirhead to abstract the public records.  Muirhead discovered an unsatisfied judgment.  Relying on a previous opinion from a local lawyer who felt that the judgment was not final and that therefore did not affect the land, Muirhead omitted the judgment from his report.

After Watson purchased the land, the judgment creditor successfully enforced his judgment, and Watson lost the property at a judicial sale.  Watson sued Muirhead for his damages.  The court ruled, however, that Muirhead had exercised due care and therefore decided that Muirhead should not be held liable for an error that was not due to his negligence.

It was clear that something better was needed.

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Easements 101

To download the article, click HERE.

Easements may burden or benefit a parcel of real estate. In either event, easements may affect the value and use of the land. For this reason, it is important to consider whether the property is either burdened or benefitted by an easement. This article will discuss the different types of easements and the ways in which easements can be created and terminated; it will also discuss title company requirements for insuring easements.

An easement is a right acquired by a landowner to use the land of another for a special purpose.  This right may be for such purposes as access, driveway, party wall, drainage, public utilities and other purposes. Easements are divided into 2 general categories: an appurtenant easement or an easement in gross.

An appurtenant easement operates for the benefit of one tract of land and burdens another, usually adjoining tract. Thus, there must be two tracts of land owned by different parties, that is, a separation of title. The benefitted parcel is referred to as the dominant estate (or dominant tenement), and the burdened parcel is referred to as the servient estate (or servient tenement). Because an appurtenant easement is regarded as being so closely connected to the dominant tenement, it is regarded as “running with the land”. This means that once the easement has been properly created, the easement will pass upon a conveyance of the dominant tenement to the grantee of the deed, even if the deed does not mention it.

An easement in gross does not specifically benefit another parcel of land. It runs in favor of a party who does not own the property adjoining the easement. A utility easement given to a utility company such as the phone, gas, cable or electrical company is the most common type of easement in gross. Easements in gross may not be considered interests in real property; they are generally not insured by title companies.

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Karlen’s Korner Special Edition: A Bleachers Story

By Douglas M. Karlen, Regional Counsel, Chicago Title Insurance Company

If at first you don’t succeed (in the courts), try, try again (in the legislature). This is the story of the Crystal Lake South bleachers. The question decided in this story is: do municipal zoning ordinances govern a school district’s construction of football stadium bleachers on school property? The courts said “yes;” the General Assembly subsequently said “yes, but . . .”

The campus of the Crystal Lake South High School occupies land that adjoins residential properties in the home rule city of Crystal Lake. The residences and the campus are zoned R-2 Single Family Residences. The school constitutes a nonconforming use permitted to continue under Crystal Lake’s zoning ordinances.

In 2013, the Board of Education that operates the high school decided to replace the bleachers at the football stadium. The Board’s plan placed the new home bleachers adjacent to the neighboring residential properties and called for the new bleachers to be larger, higher, and closer to the residences than the existing bleachers. The Board obtained approval and a building permit from the McHenry County Regional Superintendant of Schools and began work on the project without notifying Crystal Lake or seeking a building permit or zoning approval. Crystal Lake ordered the Board to stop construction until it obtained a special use permit and zoning variances. The Board ignored the order and completed the bleachers project.

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Understanding the UCCPlus Insurance Policy

An interview with Gary Zimmerman, Senior Vice President and Chief Underwriting Counsel of Fidelity National Title Group’s UCCPlus Division

A UCCPlus Insurance Policy (UCCPlus Policy) is a title insurance product that insures most personal property taken as collateral for a loan. Similar to a lender’s real estate title insurance policy that insures a mortgage or deed of trust is a first priority lien on real property, a lender’s UCCPlus Policy insures that the personal property pledged to the lender as collateral for a loan is a first priority lien. The UCCPlus Policy shifts all of the risk from the insured lender to the title company by insuring proper validity, enforceability, attachment, perfection and priority relating to the lender’s security interest or lien on the personal property. Secured lenders value this as a risk management tool that decreases their operational risk by shifting the documentation, perfection and fraud risk to the title company. Leading commercial law firms and lending institutions recognize the use of a UCCPlus Policy as a best practice.

Are there other ways that a UCCPlus Policy shifts risk?

Yes. A UCCPlus Policy shifts the risk from the insured lender to the title insurance company for loan documentation defects, fraud and forgery, search office errors and omissions, indexing inconsistencies and financing statement irregularities and defects. The attorneys and paralegals who underwrite and issue the UCCPlus Policy are highly-trained professionals with commercial transaction expertise as well as specific knowledge of Articles 8 and 9 of the Uniform Commercial Code.

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Karlen’s Korner Special Edition: A Revised Limited Liability Act

By Douglas M. Karlen, Regional Counsel, Chicago Title Insurance Company

On July 28, 2016, Governor Rauner signed into law a massive re-write of the Limited Liability Company Act, 805 ILCS 180/1-1 et seq. See Public Act 99-637 (HB 4361), effective July 1, 2017.  This comprehensive revision of the Limited Liability Company Act (LLC Act) is based in large part on the Revised Uniform Limited Liability Company Act, a model act written by the National Conference of Commissioners on Uniform State Laws.  Although P.A. 99-637 amends many sections of the LLC Act merely to match the language of the model act, the new law makes some substantive changes and adds some new concepts.  Attorneys who intend to form limited liability companies and draft operating agreements and related documents should study all 112 pages of P.A. 99-637.  For a starting point in analyzing the new law, practitioners may consult M. Hector, Proposed legislation makes sweeping changes to the Illinois LLC Act, July 2016 Illinois Bar Journal, Vol. 104., pp. 12-13.  The following provisions of the new law should be of interest to real estate practitioners.

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Construction Issues at Closing: A Title Company’s Perspective

Introduction

One of the more complex and confusing issues that can rear its ugly head at a real estate closing is that of the existence of past, present, or, in some cases, future contracts for construction on the land. These contracts can create headaches for owners, purchasers, lenders, attorneys, and title insurers if the issues surrounding these contracts are not dealt with prior to closing. This article will identify construction issues that arise at closing and discuss how Chicago Title Insurance Company deals with these issues. The scope of this discussion will be limited to acquisition and refinance transactions rather than construction loan closings.

Illinois Mechanics Lien Law

Before one can start the process of determining if there is a construction issue at closing, a basic understanding of applicable Illinois mechanics lien law is necessary. To accomplish this, a review of the “Mechanics Lien Act” (hereafter referred to as the Act) found at 770 ILCS 60/1 et seq., is imperative. What follows is a brief synopsis of some of the pertinent parts of the Act.

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