Race-Notice Jurisdictions
As a "race-notice" jurisdiction, Illinois provides a powerful incentive to immediately record instruments which give evidence of an interest in real estate. Real estate deeds and encumbrances upon real estate (i.e., mortgages, installment contracts, judgments) must be publicly recorded to provide constructive notice of an interest in real estate. In Illinois, such notice is provided by recording the deed, mortgage or other instrument in the Office of the Recorder of Deeds in the county where the real estate is located. Unrecorded instruments are binding only upon the parties involved in that particular transaction and upon other parties with actual notice of the transaction.

In race-notice jurisdictions, bona fide purchasers (BFPs) protect their interests in real property only if they record their instruments before any subsequent purchasers. To be considered a BFP, a purchaser must reasonably investigate the public documents for title defects and have no actual knowledge of such defects. However, delays in recording could provide a bona fide purchaser with the opportunity to gain clear title to a property that was previously purchased by another party.

Consider the following hypothetical: Smith sells the same piece of real property first to Jones and then, three days later, to Wilson. Neither Jones nor Wilson is aware of each other's deeds. As long as Jones records her instrument before Wilson, Jones will gain clear title to the property. However, if Wilson records the instrument before Jones, Wilson will gain clear title to the property. This scenario provides a powerful incentive to record instruments quickly in race-notice jurisdictions.

The Gap
A wise purchaser of real estate will check the public records to ensure that there are no encumbrances or other title defects recorded against the property. Generally, a purchaser of real estate obtains this type of information from a commitment for title insurance, which is based upon a title search of the public records maintained in the Office of the Recorder of Deeds. However, a title search of the public records on a particular date will not always provide the most current information about the title to the property on that date. Title searchers and title insurance agents should be aware of the "gap" problem that may arise due to indexing delays in the Office of the Recorder of Deeds. A gap period exists between the time that an instrument is submitted to the Recorder of Deeds for recording and the time that the instrument is actually indexed so that it can be found during a search of the public records. There is a perpetual indexing delay in the public records simply because incoming documents cannot always be instantaneously indexed to provide immediate notice to the public. At the time an instrument is presented to the Recorder of Deeds, it is assigned a document number and stamped with the date and time. In Illinois, the instrument takes priority over other instruments based upon this document number, date, and time. However, a backlog of instruments at the Recorder of Deeds may cause a delay of two weeks or longer before the instrument is actually indexed so that it can be found during a title search. Since Illinois is a race-notice jurisdiction, this gap may create additional risks for the title insurer.

It is imperative that the title searcher and title insurance agent take steps to minimize the risks associated with the indexing-delay-gap and other gap periods. Recognizing the importance of the effective date of the commitment, performing a date-down search, understanding the Gap Coverage Endorsement, and promptly recording instruments of conveyance can significantly reduce these risks.

Effective Date of the Commitment
Although a title insurance policy indemnifies an insured against certain unknown risks, pre-printed special exception language in the title insurance commitment and an accurate title search of the public records serve to minimize the risk to the title insurance company. The commitment includes an exception that excludes coverage for any encumbrances that attach subsequent to the effective date of the commitment, but prior to the date that the deed or mortgage is recorded. Special Exception No.1 on the commitment reads as follows:

Defects, liens, encumbrances, adverse claims, or other matters, if any, created, first appearing in the public records, or attaching subsequent to the Effective Date hereof but prior to the date the proposed Insured acquires for value of record the estate or interest or mortgage thereon covered by this Commitment.

This exception shifts liability onto the insured for encumbrances that were hidden from the title search by the indexing delay.

The title insurance agent must ensure that the effective date shown on the commitment reflects the date through which instruments at the Office of the Recorder of Deeds were actually indexed, not merely the date of the last title search. As mentioned above, there may be a backlog of documents that have been assigned a date, time, and document number, but have not been indexed so that they can be located during a title search. Each time a title search is performed, the title searcher should verify the date through which all documents presented to the Recorder of Deeds for recording have been indexed or posted, and that date should be used as the effective date of the commitment.

Date-Down Search
Because thirty days or more may expire between the effective date of the commitment and the date of the closing, a date-down search is often performed just prior to closing. A date-down search is a second search of the public records and is performed just prior to closing. It examines only the period between the initial search and the closing. This search should provide the buyer and the lender with the most current information available about the status of title prior to closing. It is critical for an agent to immediately raise exceptions to coverage for any new encumbrances discovered in the date-down search. The Date Down Endorsement 1 may be used to modify the commitment, amending the effective date and adding or deleting special exceptions.

Gap Coverage Endorsement
The date-down search, however, is also subject to the indexing delay gap. In addition, even in counties where the indexing of instruments is almost instantaneous, there is always a window of opportunity to record encumbrances between the effective date of the date down search and the date the deed and mortgage are recorded. Thus, buyers and lenders may request a Gap Coverage Endorsement or include a closing instruction that requests Special Exception 1 be waived or deleted. The Gap Coverage Endorsement is issued as an endorsement to the commitment. It insures the buyer or lender against encumbrances that are recorded between the effective date of the commitment and the date the deed is recorded vesting title in the proposed insured. This type of coverage is automatically provided to the buyer and lender as part of an ATG Agency Escrow Closing. For non-agency closings on residential real estate in Illinois, the Gap Coverage Endorsement may be issued, or Special Exception 1 may be waived, under the following circumstances:

1. For residential transactions:

   1. Examine the judgment and lien report for the buyer and seller for possible judgments and liens. If you have any doubt that the matters in the report apply to either the buyer or seller, or if there are any direct "hits," do not issue the endorsement.
   2. The seller must execute an Affidavit of Title.
   3. You must evaluate the financial responsibility and integrity of the seller and buyer. Do not issue this endorsement if you think that either party is likely to have liens recorded against him or her during the gap period.
   4. Conduct a later date search just before closing. Issue a Date Down Endorsement 1 to modify the commitment, raising Schedule B exceptions for any new title defects found in the search. Change the effective date to the effective date of your search.
   5. Record the closing documents within 2 days of closing.
   6. Remit $75 for the endorsement to ATG.
   7. If the closing will be an ATG Agency closing in the Chicago area (an ATG independent closer prepares the Settlement Statement and conducts the closing), then gap coverage is automatically provided and it is not necessary to issue the endorsement with the commitment. Most lenders know this, but if you are working with a lender who does not know this and would like the endorsement, you may attach it to the commitment for no extra charge. The lender is charged for the coverage in the closing fee.
2. For commercial transactions, contact an Underwriter, or the Commercial Department, for approval before issuing this endorsement, and consult the Commercial Endorsement Rates.

Deed and Money Escrow

Another way in which the title insurance agent can minimize the risk to the title insurance company and to the buyer or lender is to hold the closing funds in an escrow account until the deed and mortgage are recorded and an accurate title search can be performed. If the title search reveals any encumbrances recorded against the real estate, the agent may either require the responsible party to clear the title defect prior to disbursement or simply negate the sale by refunding the closing funds. However, if no encumbrances arise, the agent may complete the transaction by disbursing the closing funds and issuing the title insurance policies. Using ATG's Deed and Money Escrow Instructions is helpful for these transactions.

Prompt Recording of Instruments
Unless a Deed and Money Escrow procedure is followed, there will be an unavoidable gap between the effective date of the date-down search and the date of the actual recording of the deed and mortgage. If there is no ATG Agency Escrow Closing and no Gap Coverage Endorsement has been issued, then ATG may be protected from liability during this gap period. However, buyers and lenders will not be protected. Record the deed and mortgage immediately after closing to diminish their risk.