Are we required to provide a notice of the right to choose a title insurance company to applicants for dwelling-secured home equity lines of credit (HELOCs)? Depending on the HELOC amount, a borrower will be required to pay for a title search, a limited title insurance policy, or a full title insurance policy.

We recommend providing a notice of the right to choose a title insurance company to all HELOC applicants who will be required to pay for title insurance, as defined in the Title Insurance Act.

Under the Title Insurance Act, when a borrower is required to pay for title insurance for a loan secured by the borrower’s principal residence, the borrower must have the right to choose the title insurance company. “Title insurance” means insuring, guaranteeing, warranting, or indemnifying property owners or lienholders: (1) against loss suffered by liens, encumbrances, defects, or the unmarketability of a property’s title; (2) against the invalidity or unenforceability of any liens; or (3) by doing any business substantially equivalent to items (1) or (2).

When you will require a HELOC borrower to obtain a full title insurance policy that provides the coverage defined in the Title Insurance Act, the applicant should receive a notice of their right to select the title insurance company. Based on the facts provided, it is unclear whether your “limited title insurance policies” also meet the definition of “title insurance.” However, if you determine that your limited policies do meet that definition, then those applicants also should receive the notice.

We note that the law applies only to “title insurance,” which is distinguishable from a “title search” that simply lists relevant information about a property and does not underwrite insurance coverage. However, depending on your loan application procedure, you may determine it is simpler and more conservative to provide the notice to all HELOC applicants, including those that are required to pay only for a title search, rather than a full or limited title insurance policy.

For resources related to our guidance, please see:

Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2T (“No person, firm, corporation, partnership or association which may extend credit or make a loan secured by an interest in real estate which is or is to be improved with a single family residence or any residential condominium unit occupied or to be occupied as a principal residence by either the borrower as an individual or, if the borrower is the trustee of a trust, by a beneficiary of that trust, shall require, either directly or indirectly, as a condition precedent to making such loan or extending such credit (a) that any seller, borrower, mortgagor or debtor to whom such money or credit is extended negotiate, obtain or contract for title insurance through a particular insurer, agent or broker; . . . .”)

Title Insurance Act, 215 ILCS 155/18.1 (“It is declared to be the public policy of this State that parties to a contract for the sale of residential real property who are obligated to provide and pay for title insurance have the right to choose the title insurance company and title insurance agent that will provide such title insurance. No lender or producer of title business, as the term is defined in this Act, shall, as a condition of making a loan . . . require a party to a contract for the sale of residential real property who is obligated by that contract to furnish and pay for title insurance at their expense, to procure title insurance from a title insurance company or title insurance agent other than a title insurance company or title insurance agent that is chosen by the party paying for the title insurance.”)

Title Insurance Act, 215 ILCS 155/3(1.5) (“‘Title insurance’ means insuring, guaranteeing, warranting, or indemnifying owners of real or personal property or the holders of liens or encumbrances thereon or others interested therein against loss or damage suffered by reason of liens, encumbrances upon, defects in, or the unmarketability of the title to the property; the invalidity or unenforceability of any liens or encumbrances thereon; or doing any business in substance equivalent to any of the foregoing. ‘Warranting’ for purpose of this provision shall not include any warranty contained in instruments of encumbrance or conveyance. Title insurance is a single line form of insurance, also known as monoline. An attorney's opinion of title pursuant to paragraph (1)(C) is not intended to be within the definition of ‘title insurance’.”)