Who Pays for Title Insurance in Chicago, and What Does It Actually Protect?

Of all the lines on a closing statement, title insurance is the one I get asked about the most, usually with a puzzled look. You can't see it, you pay for it once, and most people never file a claim. So why does every Chicago-area closing seem to include it? After 25 years in real estate, here's the plain-English version for buyers and sellers.

What title insurance is (and isn't)

Most insurance protects you from something that might happen in the future, like a fire or a car accident. Title insurance works backward. Illinois regulators describe it as protection against past events connected to the property or previous owners that compromise the title, such as a lien left behind by a prior owner's debt. (IDFPR Title Insurance Section)

The federal consumer bureau gives two everyday examples: a previous owner who didn't pay their taxes, or a contractor who says they were never paid for work done before you bought the home. (CFPB: What is owner's title insurance?)

Owner's policy vs. lender's policy

There are two policies, and they protect two different people:

• The lender's policy protects your mortgage lender up to the loan amount. Lenders usually require one.
• The owner's policy protects you, the homeowner, up to the price of the home. In Illinois it's optional, but it's the one that protects your equity. (IDFPR)

If an old claim pops up after closing and you only have a lender's policy, that policy pays the lender's losses, not yours. That's the whole case for the owner's policy in one sentence.

Two more things worth knowing: you pay the premium once, at closing, and an owner's policy generally covers you for as long as you own the property. When you refinance, your new lender will want a new lender's policy, but you generally don't need a new owner's policy if you bought one when you purchased. (NAIC Consumer Guide to Title Insurance)

Who pays in the Chicago area

Who pays depends on local custom and on your contract, and it can be negotiated. Around Chicagoland, one of the standard forms is the Multi-Board Residential Real Estate Contract 8.0, which is used from the city out to the collar counties. (Chicago REALTORS)

Under that contract, the seller pays to deliver a title commitment for an owner's policy in the amount of the purchase price, with extended coverage, from a title company licensed in Illinois. The seller also pays for a plat of survey dated within six months of closing, except on condos. (Multi-Board Contract 8.0, paragraphs 20 and 21)

The buyer typically pays for the lender's policy if they're getting a mortgage. When both policies are issued at the same closing, some insurers offer a reduced price on one of them, often called a simultaneous issue discount. (U.S. Treasury: Exploring Title Insurance)

So sellers should budget for the owner's policy and survey, and buyers with a loan for the lender's policy. Your attorney will confirm what your contract says.

Prices vary, so ask

The state's own advice is simple: prices vary, so compare and ask questions about each fee and charge. Illinois also says the party paying for title insurance has the right to choose the title company. (IDFPR)

When I'm helping sellers figure out their bottom line, title charges go on the same sheet as transfer taxes, prorations and commission. It's one more reason my sellers like my 1% total commission: the fixed costs of closing are what they are, but the commission is a choice.

Two free ways to protect your title

Sign up for Cook County's Property Fraud Alert. The Cook County Clerk offers a free service that calls or emails you whenever a document is recorded against your property. It's a notice, not a freeze, but an early warning matters: if a forged deed gets recorded, it's up to the owner to go to court to have it removed. You sign up with your name and your property's PIN, and condo owners need to include the last four digits. (Cook County Clerk Property Fraud Unit, sign-up page)

Never wire closing money based on an email. Scammers send fake emails that look like they're from your agent or title company, with "updated" wiring instructions. Before you wire anything, confirm the instructions by calling a phone number you already have, not one in the email. If something goes wrong, call your bank right away and ask for a wire recall, then report it to the FBI at ic3.gov. (CFPB: Mortgage closing scams)

The bottom line

Title insurance is a one-time cost that protects against problems from before you owned the home. Read your contract, shop the fees, set up the free fraud alert, and confirm every wire by phone.

Buying or selling in Chicago or the suburbs and want a clear picture of your closing costs? Call or text me at 312.882.9797.

This is general information, not legal or tax advice. Talk to your real estate attorney about your specific situation.