Is Illinois considered a “dry” closing state or a “wet” closing state for mortgage loan transactions? Would it be illegal for a bank to be involved in a dry closing in Illinois?

Based on our research, Illinois generally is considered a wet closing state, but we are not aware of any law or regulation prohibiting dry closings in Illinois. However, dry closings may be rare in this state due to title companies’ reluctance to insure such transactions.

In a wet closing state (also referred to as a “wet funding” or “wet settlement” state), the entirety of a mortgage loan closing takes place on the same day, including the signing of closing documents, funding, and transfer of title. Conversely, in dry closing states, the parties to a transaction sign documents on one date, while loan funding and transfer of title or the recording may occur on subsequent dates. Put another way, wet funding requires all mortgage funds to be distributed at the closing, while dry funding requires all funds to be distributed after the closing and after all necessary paperwork has been completed.

Although Illinois generally is included in lists of wet closing states, we are not aware of any laws prohibiting dry closings in Illinois, and we are aware of at least two court cases that reference dry closings in Illinois with no indication that the practice is disallowed. Consequently, we believe that a bank may be involved in a dry closing in Illinois if all parties to the transaction agree that the sale or transfer of property may close before the loan is funded.

For resources related to our guidance, please see:

Interagency Q&As Regarding Flood Insurance, 87 Fed.Reg. 32826, 32870 (May 31, 2022) (“‘Wet funding’ and ‘dry funding,’ which varies by State, refer to when a mortgage is considered officially closed. In a ‘wet’ settlement State, the signing of closing documents, funding, and transfer of title occur all on the same day. By contrast, in a ‘dry’ settlement State, documents are signed on one date, but loan funding and/or transfer of title/recording occur on subsequent date(s). Therefore, in ‘dry’ settlement States, the ‘closing date’ is the date of property transfer, regardless of loan signing or funding date.”)

ATG Title, The Difference Between Wet and Dry Funding (“Wet funding states require that all mortgage funds are distributed at the close of sale, along with all other necessary paperwork, such as escrow conditions and signed loan paperwork. Dry funding states require that all funds are distributed after the close of sale and only after all proper paperwork has been completed.”)

Rocketmortgage.com, What Is A Dry Closing And What States Have Wet And Dry Funding? (February 27, 2023) (List of dry funding states — Illinois not included)

JMAC Lending, Dry and Wet Funding Reference Guide (Listing Illinois as a wet funding state)

People v. Zaibak, 2014 IL App (1st) 123332, ¶ 13 (“The closing was a ‘dry closing’ in that legal documents were signed but no money changed hands.”)

RFJ Investments, LLC v. Chicago Title & Trust Co., 2013 IL App (1st) 113800-U, ¶ 7 (“The closing document, dated June 15, 2007, accurately represented the instructions LaCalamita was bound to follow. She explained that the June 15 closing was a ‘dry’ closing, meaning no disbursements were made until certain documents were received.”)