ATG has experienced a number of claims and post-closing problems dealing with the insurability of the mortgage that is part of the transaction being insured. These problems are generally due to the failure of one or more titleholders to properly execute the mortgage. In conversations with members, it has become evident that many members don't consider it part of their duties as title agents to determine the insurability of the mortgage. This article clarifies your responsibilities as a title agent with specific regard to the insured mortgage.

As the issuing agent, the member/agent is responsible for examining the title and issuing the commitment and policies that are part of the real estate transaction. If the commitment commits to insure the title of the buyer and lender, then the member/agent must determine at the time of closing whether the title documents creating the insured interest, i.e., the deed and the mortgage, are insurable according to the terms of the commitment and other closing documents, such as the lender's closing instructions and the Agency/Escrow Disbursement Agreement or other escrow document. Frequently, members and agents, especially those representing the seller, incorrectly assume that as long as the deed correctly conveys title to the buyer, their responsibilities as title agent are concluded. This false assumption has led to serious title problems and claims.

Most notable among the title problems is the failure of all titleholders (and their spouses, if homestead property) to sign the mortgage, thereby failing to create a valid lien on the entire interest in the land. Frequently, these problems arise when additional grantees (usually spouses) are added to the deed at the time of closing without changing the mortgage. Alternatively, a lender may qualify only one of the titleholders for the loan, and will, therefore, prepare the note and mortgage with only that titleholder as signatory. This would be correct for the note, since only that titleholder would be the obligor on the debt. However, having that titleholder as the sole mortgagor would not give the lender a valid lien on the entire property because none of the other titleholders signed the mortgage, thereby agreeing to a lien on their interest. It could result in the lender's lien extending to only a partial interest in the land or the mortgage failing altogether. As long as there is some consideration flowing to the other titleholders in exchange for their grant of a lien on their interest, there is no conflict when only one titleholder is the signatory on the note but all the titleholders are signatories on the mortgage.

The only time it isn't necessary for all titleholders to execute the insured mortgage is when all are tenants in common and the mortgage is meant to be a lien on only the signatory's partial interest. In this case, the commitment and policy must raise the partial-interest exceptions. See "Insuring a Fractional Interest" in the ATG Basic Underwriting Handbook (available on the member section of — click "Member Handbooks" under Publications), Chapter 3C, Tenancy in Common.

The failure of all titleholders to execute the insured mortgage could lead to a total failure of title claim in the case of joint tenancy or tenancy by the entirety property located in Illinois. In the seminal case of Harms v Sprague (119 Ill App 3d, 503, 456 NE2d 976, 75 Ill Dec 155 (4th D 1983)), the court removed the lien of the mortgage from the title of the non-signing surviving joint tenant upon the death of the mortgagor joint tenant. Even more problematic is property held by a husband and wife as tenants by the entirety. In that case, a mortgage executed by only one of the spouses is completely void ab initio as a lien on the property. 765 ILCS 1005/1c.

It is also imperative that all titleholders execute the mortgage unconditionally and are named in the mortgage as borrowers or mortgagors. Again, in cases where only one of the titleholders is qualified for the loan, the mortgage will be prepared with only that titleholder listed as the borrower. The mortgage may contain a signature line for the titleholder's spouse preceded or followed by some conditional language, such as "for purposes of waiving homestead only." If the spouse is also a titleholder (e.g., as in the case in which the spouse's name is added as an additional grantee to the deed at the closing), the failure to include the spouse in the mortgage as borrower or mortgagor, combined with the conditional language of the signature block, would result in a total failure of title claim as outlined above, because the spouse is not agreeing to a lien on his or her interest in the land, but is merely signing the mortgage for the limited purpose of waiving homestead.

We cannot fully discuss Illinois homestead issues in this article, but would like to remind you that whenever the application for title insurance or the transaction indicates that a party's marital status is unknown, the commitment for property located in Illinois should contain the following exception: The spouses, if any, of the grantors and mortgagors must join in any conveyance or mortgage of the land.

If you are a member of ATG's Title Services Complete program, select the "Homestead" checkbox on the Commitment Preparation Instructions to add this exception to the commitment.

Keeping these issues in mind before and during the closing can avoid most of these problems, reducing claims and post-closing delays and expenses. If you have any questions, please contact the ATG Underwriting Department.

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