The Trusted Adviser February 2011 | Volume 4 • Number 1



Real Estate Taxes; Title Insurance

Rhone v First American Title Ins Co, 401 Ill App 3d 802, 928 NE2d 1185, 340 Ill Dec 588 (1st D, 2010).

Facts:A home was built in 2003 and inhabited by its owners until 2006. During that time, the land was incorrectly assessed as "vacant land," which significantly reduced the real estate taxes. In August 2006, the owners and builders of the home sold it to Ray and Denise Rhone. The Rhones were aware of the mistake in the assessment and expected an increase in their real estate taxes. As such, they negotiated an agreement whereupon the sellers would place $10,000 in escrow to cover their part of the potential increase in real estate taxes for 2006. The agreement did not apportion any additional tax liability that might result from the reassessment of the property for the years prior to 2006.

The sellers&€™ attorney, Kent Novit, also served as the issuing agent for a title insurance policy issued by First American Title Insurance Company (First American). The policy excluded "taxes or special assessments which are not shown as existing liens by the public records," but this exception was waived by endorsement.

In February 2008, the Rhones received tax bills from the county assessor that readjusted the tax bills for 2004 and 2005 and charged the Rhones roughly $10,000 in back real estate taxes for the property, which the county assessor&€™s office described as entered in 2007, payable in 2008.

The Rhones filed a claim with First American under the title insurance policy. First American denied the claim on the grounds that the 2004 and 2005 reassessed taxes are not yet due and payable until 2008, whereas the policy covered taxes until 2006, when it was issued.

The Rhones filed a complaint in civil court against First American, seeking a declaration that the policy did cover the unassessed taxes, and seeking special damages. The parties filed cross-motions for summary judgment and the trial court granted First American&€™s motion. The Rhones appealed.

Holding:Affirmed. The appellate court determined that the statutes of the State of Illinois provide that tax reassessments are due with the second real estate tax payment of the preceding year. This, according to the court, means that the actual tax bill arose, as First American contends, in 2007, not in 2004 or 2005.

However, the court also determined that if the property was subject to a cloud on title prior to August 2006 as a result of the unassessed taxes, the First American policy would cover the real estates despite the fact that the charge did not originate until 2007. The court disagreed with the Rhones&€™ interpretation that Cook County&€™s ability to reassess the taxes was sufficient to be considered an encumbrance even when Cook County had not exercised that ability.

The appellate court relied on cases from several other states in determining that the liability of a title insurer is not future-oriented. The mere possibility that the real estate taxes could be reassessed was not sufficient to create an encumbrance that a title insurance policy would cover. The taxes themselves were not levied until 2007 and likewise do not fall under the policy. As a result, the appellate court affirmed the trial court&€™s grant of summary judgment in favor of First American.






THE TRUSTED ADVISER is published by Attorneys’ Title Guaranty Fund, Inc., P.O. Box 9136, Champaign, IL 61826-9136. Inquiries may be made directly to Mary Beth McCarthy, Corporate Communications Manager. ATG®, ATG® plus logo, are marks of Attorneys’ Title Guaranty Fund, Inc. and are registered in the U.S. Patent and Trademark Office. The contents of the The Trusted Adviser © Attorneys' Title Guaranty Fund, Inc.

[Last update: 1-20-11]