05/11/2017
CALL TO ACTION! Stop H.B. 2702!
House Bill 2702 allows independent escrowees to issue CPLs, but does not require them to provide the same financial protections to consumers or have the same costs to enter the market as title underwriters.
How can you help?
The independent escrowee supported closing protection bill (HB 2702) is posted for the Illinois Senate Judiciary Committee today, Thursday, May 11th at 3:30pm.
ILTA and IMBA Opposes HB2702
Title insurance underwriters are the only entities under the Title Insurance Act (Act) that are required to be in a financial position to consistently protect buyers, sellers and lenders regarding a CPL claim.
Please follow the below instructions to file a witness slip in opposition to HB2702.
Once you have clicked on the link, please complete all required fields, select "opponent" of original bill and select "record of appearance only". Check the box to agree to the "ILGA Terms of Agreement" and select "Create Slip" to complete. You will receive an auto generated email containing a Witness Slip Confirmation.
Background: IMBA statement on opposition to H.B. 2702
As we understand it, H.B. 2702 would allow independent escrow agents to back closing funds in escrow with only a two million dollar bond. Under current law, escrow funds of borrowers, buyers' lenders, and sellers' lenders must be backed by a closing protection letter issued by a major title insurer with significant capital reserves far exceeding a mere two million dollar bond.
Some background should illustrate why the Bill concerns the IMBA. In a typical home mortgage transaction, the buyer's funds come in part from their lender and in part from the buyer-borrower. These funds are due to the seller in part and usually the seller's lender as well in exchange for passing title to the home.
Closing protection letters are issued because, unfortunately, on rare occasions an escrow agent handling the funds fails to get them to the destination intended by the parties to the transaction. Sometimes this is due to outright theft, but this can also occur relatively innocently, e.g., the agent is herself defrauded out of the funds by third parties. This can leave borrowers owing money on a property for which title never passed to them and leave lenders without the collateral they expected to receive in a loan transaction. Title insurance does not typically provide coverage for this scenario - that is, title insurance goes to title defects, but the closing protection letter is effectively the only protection for homeowners and lenders as to malfeasance with respect to the closing funds placed in escrow other than direct action against the agent, but this is usually a hollow remedy.
When such malfeasance occurs, the loss can often exceed two million dollars. Under current law, closing protection letters issued by major title insurance companies with significant capital reserve requirements are generally sufficient to make the parties whole. The fact that under the Bill the two million dollars is only available through a bond, as opposed to reserves, means there could be months or years of litigation before such funds are released to make whole the injured homeowners and lenders. Larger institutions could absorb these delays, albeit at a cost, but homeowners and smaller lenders would face serious harm from such delays.
Prior to 2011, closing protection letters were not required to, and usually did not, protect the borrower's funds, and often only protected one of the multiple lenders involved. Many consumers and lenders were hurt by this and the prevalence of these injuries is what led, in part, to this legislature amending the Title Insurance Act to require that closing protection letters cover borrowers. The Bill now pending implicates similar concerns.
As a result, the IMBA opposes the Bill as not being in the long-term best interests of consumers and lenders. While less protection is inherently cheaper, and this benefits consumers who never have the unfortunate luck of seeing their funds diverted from their intended use, the association thinks on balance the protection of consumers and lenders in their funds is a more important interest than some relatively minor costs attendant to the existing capital requirements for title insurers. Moreover, consumer confidence that their funds will be used as they intend comes with its own economic benefits.
http://my.ilga.gov/WitnessSlip/Create/104000?committeeHearingId=14942&LegislationId=104000&SCommittees5%2F17%2F2017-page=1&committeeid=0&chamber=S&nodays=7&_=1494433491874
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