Illinois § 16.1

§ 16.1.

Closing or settlement protection. (a) Notwithstanding the provisions of item (iii) of paragraph (B) of subsection (1) and subsections (3) and (8) of Section 3 and Section 16 of this Act, a title insurance company or title insurance agent is not authorized to act as an escrow agent in a nonresidential real property transaction where the amount of settlement funds on deposit with the escrow agent is less than $2,000,000 or 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, lender's, and seller's interests have been issued by the title insurance company on whose behalf the commitment, binder, or title insurance policy has been issued. Closing protection letters are not required when the authorization for the title insurance agent to act as an escrow agent is given by an agency contract with the title insurance company pursuant to subsections (f), (g), and (h) of Section 16 of this Act, but shall be issued by the title insurance company upon the request of a party to a nonresidential real property transaction where the amount of settlement funds on deposit with the escrow agent is less than $2,000,000 or in a residential real property transaction. (b) Unless otherwise agreed to between a title insurance company and a protected person or entity, a closing protection letter under this Section shall indemnify all parties to a real property transaction against actual loss, not to exceed the amount of the settlement funds deposited with the escrow agent. The closing protection letter shall in any event indemnify all parties to a real property transaction when such losses arise 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 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 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 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 escrow agent 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 escrow agent. (4) Failure of the escrow agent to comply with written closing instructions to the extent that such instructions require a determination by the escrow agent of the validity, enforceability, or effectiveness of any document described in subitem (B) of item (1) of subsection (b) of this Section. (5) Fraud, dishonesty, or negligence of an employee, agent, attorney, or broker, who is not also the escrow agent or an independent contract closer of 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. The closing protection letter may also include reasonable additional provisions concerning the dollar amount of protection, provided such limit is not less than the amount deposited with the escrow agent, arbitration, subrogation, claim notices, and other conditions and limitations that do not materially impair the protection required by this Section 16.1. (d) 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. (e) The Secretary shall adopt and amend such rules as may be required for the proper administration and enforcement of this Section 16.1 consistent with the federal Real Estate Settlement Procedures Act and Section 24 of this Act. (Source: P.A. 96-1454, eff. 1-1-11.)