July 2009 Vol. 2, No. 7

Claims Corner

Chain of Title

Administrative Cases in the Chain of Title

In general, title insurance does not provide coverage for violations of building and zoning regulations. However, the Owner's Policy of Title Insurance (Policy) provides coverage for such violations in certain instances. Covered Risk Number 5 on the Policy states the following:

The violation or enforcement of any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to:

(a) the occupancy, use, or enjoyment of the Land;
(b) the character, dimensions, or location of any improvement erected on the Land;
(c) the subdivision of land; or
(d) environmental protection

if a notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice. (emphasis added)

Such notice will appear in the chain of title as a recorded document that is entitled Recordings of Findings, Decision and Order (Administrative Order). The Administrative Order will show two important things:

  • the fines that have been imposed in the administrative hearing for the violations of the governmental regulations; and

  • the nature of the violations and what governmental regulation is being violated.

The information provided about the violations is what puts the title insurance company on notice of the violations. As a result of that notice, the violations of the governmental regulations then fall under the Covered Risk portion of the Policy.

The following exception should be raised when you come across a recorded Administrative Order:

Recordings of Findings, Decision and Order recorded on _______as Document Number _____.

To waive an exception on the commitment for a recorded Administrative Order, there must be proof of compliance with the governmental regulations and the fines must be paid. Payment of the fines alone is not enough. Unless there is evidence of compliance, the Policy should be issued subject to the violations. This might be an option if the purchaser intends to rehab the property.

When there is a foreclosure in the chain of title or if you are involved in the transaction after the foreclosure (the REO closing), Administrative Orders are treated differently. In these cases the violations and the fines must still be looked at separately, but the fine might have been eliminated in the foreclosure.

When an Administrative Order is recorded after the foreclosure lis pendens, the fine portion of the Administrative Order will be eliminated in the foreclosure. Similarly, when the municipality is named and properly served in the foreclosure, any fine imposed in an Administrative Order that was recorded after the mortgage being foreclosed but prior to the foreclosure lis pendens will be eliminated.

The fine portion of the Administrative Order is eliminated because 65 ILCS 5/1-2.1-8 (d) provides that after an Administrative Order is recorded, a lien is imposed on the real estate for the amount due. That section of the Illinois Compiled Statutes also provides that "the lien may be enforced in the same manner as a judgment lien pursuant to a judgment of a court of competent jurisdiction." Therefore, the fine portion of the Administrative Order is treated the same as any monetary judgment.

What remains on title are the underlying violations that were disclosed in the Administrative Order. Therefore, the following exception should be raised:

Violations of the City of _____ municipal code as disclosed in document recorded on ______ as document number ________.

If you have any questions regarding Administrative Orders, please contact the ATG Underwriting Department,legal@atgf.com, 217.403.0020, or 312.752.1990.

© ATG|Casenotes/Bulletin 0906_v2n7

[Last update: 7-27-09]