What is a “TI” or “Title Indemnity”?
As you may have heard, the Cook County Treasurer is delayed in issuing the 2021 Second Installment Tax bill, which is further complicated by significant changes in many property values around the city for the same period due to 2021 being a reassessment year. Many buyers are discovering that their lender is requiring a “TI” at closing. It may appear on your closing statement like this:
TI 2021 2nd Installment Tax to [Title Company]
As a buyer of property in Cook County, due to the fact that taxes are paid in arrears, you are obligated to pay the seller’s share of the 2021 and 2022 taxes that are unknown and outstanding at the time of your closing. While negotiate appropriate credits during attorney review or, in some cases an escrow hold back to ensure you receive money from the seller to cover that tax liability, many lenders do not want those credits to go to you directly; rather, they want the money to stay with the title company after closing until the 2021 second installment bill comes out. That process ensures that the tax bill is paid and relieves you and your lender from the trouble of paying the bill when it does ultimately come out. In most cases, lenders will require that 150-200% of the last known full year tax bill prorated for half the year (the last known bill is currently 2020) be held at closing. This is called a “title indemnity” because the title company indemnifies you and your lender - that is, the title company ensures the taxes get paid on your behalf which is good for you and your lender. Please note this is a different tax set-aside than an escrow from the seller.
How does this affect my “cash to close”?
In most cases, the TI deposit should be offset by credits you receive from the seller for the taxes. In other words, while your lender is requiring you to hold back those funds, you are getting the funds from the seller so the effect essentially nets out, usually within a few thousand dollars. If you are reviewing a closing statement that is not final, please request a final closing statement before bringing concerns about this issue to our attention. Many times the seller credits are not reflected in preliminary versions.
What if the taxes are more or less than the amount held back?
The amount held back is almost always more than enough to cover unknown taxes. We all have real problems if taxes go up more than 50 to 100%! Once the 2021 Second Installment Bill comes out, the title company will issue you a refund of the difference between the actual bill and the amount held back. Please note that this process is handled directly between the title company and Cook County and we have no control over the timing or release of funds. If you have questions, please contact the title company that handled your closing which can be located on your closing statement.