The Secret of Title Insurance
Posted: under Buyers, Cook County Treasurer, Taxes.
In transactional real estate land, title insurance is one of the most misunderstood products by lawyers and non-lawyers alike. Yet it needn’t be…if you understand what car/homeowners insurance does there’s no reason you shouldn’t have a basic understanding of what title insurance does. And this recently reported First District (Rhone v. First American, No. 1-09-1216) case provides a nice back-drop for a rich and thorough title insurance discussion.
You really just need to understand a couple things and you’ll “get” title insurance just like you “get” car insurance. Every insurance policy will have some “effective date.” The confusing issue with title insurance is that whereas a car insurance policy would cover damage the day AFTER the policy’s “effective date” with title insurance, the policy would cover damage the day BEFORE the “effective date.” Title insurance looks backward whereas the car insurance looks forward. Okay?
The case above includes an interesting mix of property tax law and title insurance law. The Plaintiff’s close/buy (on) a Chicago townhome 8/31/06 that had been taxed as vacant land for 2004-2006 so it was undertaxed quite a bit for those 3 years. Interestingly, the parties to the real estate transaction DID have a tax reproration agreement but only for 2006 taxes (not ’04-’05). In February 2008 the Plaintiff’s get a Cook County tax bill entitled, “2007 Omitted Assessment Property Tax Bill” from the county treasurer that charged them for the 2004 and 2005 taxes (no longer classified as vacant land). Plaintiff’s then make a claim against their title policy from First American which was denied.
In June 2008 they bring suit regarding First American’s failure to pay their claim for the 2004-2005 taxes. The appellate court sided with First American citing a mix of property tax and contact law. Obviously, the big question was how should the 2004-2005 taxes be viewed…are those obligations that arise in 2004-2005 whereby First American would be on the hook OR do they not actually arise until 2008 when the tax bill is issued. I won’t delve into the tax code too much here, but the court held that the property tax lien doesn’t arise until 2008 (for the 2004, 2005 taxes) therefore these bills weren’t covered on the title policy.
Putting on my real estate transaction lawyer hat for a second, this is a bit of a scary scenario and primarily because it’s not that easy to find-out previous year tax information for a property. For example, look at the Cook County Treasurer’s site, it’s one click to look back one year but there’s not an obvious way to go back any further. And I do typically take a very close look at property taxes during a transaction. I suppose if you get something fishy like this case above where it’s a Chicago townhome that’s classified as vacant property you’ve got to really look under all the rocks to see what’s what.
Comments (1)
Jul 01 2010
