January 2011 Vol. 4, No. 1

Underwriters' Bulletin

Claims Corner

Omitted Assessments

Assessments made against a property after the effective date of a title insurance policy are excluded from coverage by the conditions of the policy. So-called "omitted assessments" often arise in new construction. In the typical scenario, a property is initially assessed as vacant, but then at some point in the future when an improvement is constructed, the county still assesses the property as vacant. When the county discovers the discrepancy, it may issue an omitted assessment bill.

Omitted assessments fall within the exclusions from coverage of the Owner's Policy of Title Insurance because omitted assessments do not become liens until they are assessed and due and payable. Exclusion from Coverage 3d of the Owner's Policy of Title Insurance provides as follows:




3. Defects, liens, encumbrances, adverse claims or other matters:
. . .
(d) attaching or created subsequent to Date of Policy...




Further, the typical Owner's Policy of Title Insurance contains a special exception for taxes for the current assessment year and subsequent years. Since the omitted assessment will be assessed after the currently assessed year, coverage will be excluded by the special exception.

Rhone v. First American Title Insurance Company, 401 Ill.App.3d 802 (2010), is a recent first division appellate case that deals specifically with the liability of a title company for omitted assessments.Rhoneinvolved purchasers who purchased a three-year-old townhouse. Prior to the closing, the purchasers became aware that the property was being assessed as vacant land. A re-proration agreement was entered into between the parties for the 2006 real estate taxes. However, no re-proration agreement was entered into for the years 2004 and 2005 when the townhouse was also being assessed as vacant land. After the closing, Cook County sent the purchasers an omitted assessment bill for the years 2004 and 2005. The omitted assessments were due and payable at the same time as the second installment 2008 taxes.

First American Title Insurance denied coverage because the 2004 and 2005 omitted assessments were not liens on the property as of the date of the policy, which was August 31, 2006. The appellate court agreed. Specifically the court held as follows:


We hold that by operation of the Tax Code, the bills regarding the unassessed taxes acquired status as tax liens on January 1, 2008. The additional tax bills for 2004 and 2005, based on the 2007 reassessment of the property as improved, could not constitute an encumbrance on the title by way of any "unexercised authority" of the Cook County assessor on or before August 31, 2006. To hold otherwise would so enlarge the term "encumbrance" to make it virtually impossible to determine whether an encumbrance exists at the time a title insurance policy is issued. Rhone, 401 Ill.App.3d at 812.


While ATG is confident that the language of the policy and the court's decision inRhonemake it clear that ATG does not have liability for omitted assessments, it would be prudent to add an exception to the commitment and policy when you have knowledge that a property is not being assessed for all improvements. The exception language should state as follows:


The lien of additional taxes which may be assessed for prior years by reason of construction of new or additional improvements during a prior year and extended for collection on a subsequent year's collector's warrant.


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

© ATG|Casenotes/Bulletin 1101_v4n1

[Last update: 1-21-11]