Frequently Asked Questions

What is Title Insurance and why do I need it?
A title insurance policy insures the status of title. Title insurance policy is issued by title insurance companies. Such policy protects the person named as insured on the title policy against financial loss related to the title, as well as the cost of defending the title in court, should any undiscoverable defects in title arise that would not have been discoverable during the title search and examination of the public records.

What are different forms of holding Title?
Below you will find common methods of holding title to the property, or rather, owning property:

a) Sole owner
This way of holding title is pretty self-explanatory. You hold title as a sole-owner when you purchase property in your name only, as an individual.

b) Joint Tenants
Under this form of ownership, title can be held in multiple names. Each joint tenant owns an undivided interest in the entire property. Ownership shares are presumed to be equal unless the deed states otherwise. If one joint tenant dies, that person’s interest automatically is transferred to the remaining joint tenants. Furthermore, any joint tenant during his/her lifetime, may freely transfer his/her interest in the property to another party. However, such transfer during a joint tenant’s life will terminate joint tenancy and create a tenancy in common.

c) Tenants in Common
This form of ownership allows title to the entire property to be held in multiple names. Each tenant in common can freely transfer his/her interest to another party. However, unlike in Joint Tenancy, upon one tenant’s death, his/her respective ownership interest does not automatically transfer to other co-tenants, but rather transfers to the deceased tenants’ heirs. Equal ownership among tenants is also presumed unless otherwise specified in the deed.

d) Tenants by the Entirety
This form of holding title is reserved for validly married couples only. Under this form of ownership, neither tenant may transfer his/her interest to a third party or encumber the property without both tenants joining in the deed or mortgage. Upon the death of one party, the property automatically becomes the sole property of the surviving spouse.

What are the most commonly used forms of deeds?

a) General Warranty Deed
This type of deed is “the best” deed. It is most commonly used and it guarantees the seller’s good title before the conveyance, and that warranty continues after the conveyance. The deed also contains such warranties by the seller as warranty of good title, freedom from encumbrance other than specifically identified, and right of possession. The warranty includes claims arising during or prior to the seller’s ownership.

b) Special (or Limited) Warranty Deed
This type of deed provides less extensive warranties from the seller. Under this type of deed, seller warrants only against claims arising during the period of the grantor ownership but does not warrant against any claims arising prior to the grantor’s ownership of the property.

c) Quit Claim Deed
This deed contains no warranties of any kind and conveys only the interest held by the grantor. This type of deed is most often used in a non-sale transaction such as transfers between spouses.

What is the purpose of “recording” a deed?
The Deed is a document that transfers ownership of the property from seller to buyer. At the closing, the seller, in exchange for a specified amount of money, tenders a copy of the deed to the purchaser. The delivery of the deed completes transfer of interest in real estate. Following the closing, the deed should be recorded with the county clerk in the county where the property is located. Recording the deed with the county clerk gives notice to the public that the purchaser now has an ownership interest in that particular property.

What is a survey and why do I have to purchase one?
A survey is a drawing of the property which, depending on what type of survey is requested, usually shows any improvement to the property, the boundary lines of the property and encroachments, if any, affecting the property. In residential transactions, a survey is often required by the lender as this is the only document that confirms that the legal description in the deed matches the legal description of the property the buyer is purchasing.

How is a cooperative different from a condominium?

a) Condominium
When you purchase a condominium unit, you legally own a particular unit in a multiple unit building. Under this type of an arrangement, you have a share and a right to use common areas such as hallways, elevators, gardens, swimming pools, etc. that are part of a condominium complex. You are responsible for paying association dues for maintenance expenses for the common areas of the condominium building.

b) Cooperative
On the other hand, when you purchase a unit or an apartment in a cooperative ownership structure, you do not own your specific unit in a building in the same way you own a condominium unit, but you own stock in the corporation that owns the building and all the apartments. You lease your apartment from the corporation of which you own stock and you are a shareholder. As a shareholder, you have the right to participate in the election of the Board of Directors who manage the cooperative on behalf of the corporation.

What is an Escrow and an Escrow Agent?
An escrow agent is a third party (designated by all the parties involved) to hold funds or documents for a certain period of time or until a certain date. Once that time is up, the escrow agent hands over the funds or documents to the earlier designated party. Typically, the escrow agent is the title company and the funds and documents held relate to the sale and purchase of real estate. In Illinois, it is typical to hold the real estate closing through an escrow agent that collects and distributes all funds and documents relating to the closing according the specific written escrow instructions.

What is an assignment of leases?
An assignment of leases is an additional security for the Lender in exchange for a loan extended to the debtor or borrower. It assigns the debtor’s rights (as landlord under a lease) to the creditor for the collection of rent. In case of the borrower’s default, the Lender can step into the shoes of the debtor, as landlord under the lease. The Lender would collect rent and enforce landlord’s rights under the lease.

What is an environmental indemnity agreement and why do I need one?
An environmental indemnity agreement is an agreement in which a debtor agrees to indemnify the creditor against any claims arising from environmental contamination of the mortgaged property. Creditors require environmental indemnities as protection against loss or damage to which the creditor has not contributed due to creditor not operating the mortgaged property.

What is the effect of a guaranty?
When the debtor is a business organization such as an LLC or a partnership, Lenders usually require a guaranty of the loan by one or more of the members, partners or shareholders of that entity. A guaranty is a promise by a third party to pay a debt if the debtor fails to pay. It is an added assurance for the lender for payment and performance of the obligations under a loan.

What is a non-recourse loan?
A non-recourse loan is a secured loan that limits the creditor, in the event of debtor’s default, to proceed only against the collateral securing the loan to satisfy the debt and not the debtor’s other assets which are not specifically pledged as collateral.

What is a due on sale clause?
A due on sale clause is a provision in a note or mortgage, which states that upon sale of the property acting as collateral for the loan, at the creditor’s option, the entire outstanding debt becomes immediately due and payable. Typically, such provisions are put into mortgage agreements to prevent a subsequent buyer from assuming the existing debtor’s financing at less than existing market value.

Can a lender charge a prepayment penalty on my loan?
In a commercial setting, a lender can charge a prepayment penalty when the debtor pays off the entire balance due on the loan prior to the maturity date listed in the agreement. The purpose of the prepayment penalty provision is to compensate the lender for the loss of the anticipated interest revenue the lender would have realized during the full term of the loan.

What is Business Law?
Business Law is composed of many rules, statutes, codes, and regulations that govern commercial relationships and provide a legal framework for how businesses may be managed and operated. This practice of law is highly diverse and includes such areas as:

• Business Formation and Organization
  
• Drafting
• Business Planning
  
• Negotiations
  
• Mergers and Acquisitions

What factors should be considered in choosing the type of business structure for my business?
When choosing a business form, it is important to consider many important factors that will affect your short- and long-term objectives. Some of the main considerations include your preference of tax treatment, how you intend to capitalize the business, how you intend to structure the management of your business and issues surrounding the liability of the business owners

What is the difference between an S-Corporation and a C-Corporation?
The major difference between the two entity structures is how the two corporations are taxed. An S-Corporation is not itself taxed, but rather its shareholders are taxed and any income earned is reported on shareholders’ personal tax returns.

A C-Corporation is subject to “double taxation.” It is first taxed at the corporate level when the C-Corporation files its annual tax return and subsequently, the individual shareholders are taxed at the personal level, when income from the corporation (dividends) is paid out to individual shareholders and reported on their personal tax returns.

What is a non-profit corporation?
A non-profit corporation, as implied by its name, is a corporation formed not simply to generate profit and advance self-interest but to further a charitable, educational, religious, or scientific purpose. A non-profit corporation is exempt from payment of federal or state income taxes. This special tax designation afforded to non-profits stems from the IRS and state tax agencies’ belief that the benefits the public derives from these organizations’ purposes and activities entitle them to a special tax-exempt status.

Should my corporation have a Buy-Sell Agreement?
Corporations and partnerships with more than one shareholder or partner should seriously consider having in place a buy-sell agreement. This is to help minimize corporation’s or partnership’s risks and problems associated with sudden death of a shareholder or partner, divorce, disability and to provide for an orderly succession should any of the above commonplace events occur.

What is a will?
A Will is essentially a list of directions for what happens to your possessions when you die. You can leave your money, real estate and personal possessions to family members, friends or other loved ones or to entities such as a university or a charitable organization that is important to you. 

What is a living will?
It is your written express wishes or directives regarding life support. In Illinois, it is only effective if you are terminally ill and have less than a year to live. Moreover, your terminal illness must be certified by two physicians.

Can I just write a letter or directions and sign it?
In Illinois, written instructions that are just signed are not legally enforceable, unless they meet all of the other legal requirements for Wills. If the written instructions are deemed to not meet the legal requirements for Wills, your assets would be distributed according to state law.

What happens if I die without a will?
If you die without a valid will, then your assets will be distributed according to state law and that may not fall in line with your wishes. In Illinois, if you are married with children, state law dictates that your spouse and children inherit your assets, half to your spouse and the other half to your children, divided equally among them. If you are single and don’t have any children, then your next closest relatives inherit, such as parents and siblings.

If I die, what happens to my minor children?
The answer depends on whether you have a valid Will or not. You nominate a guardian for your children in a Will. If you do have a Will that nominates a guardian for your children, it is very likely the Court will name that person to be the guardian. If you do not have a valid Will, then the Court will decide who will be the guardian for your children. The Court will take the children’s best interest into consideration and will look to people closest to them when naming the guardian. However, if several people want to be the guardian, an expensive legal battle can ensue.

What is a guardian?
Children under the age of 18 need guardians if their parents are deceased or unable to make decisions. Adults that are incapacitated or disabled also need a guardian to make certain decisions for them. A guardian is a person nominated by a Judge during a court proceeding to make health care and financial decisions for someone who cannot make their own decisions due to various incapacities.

What is a Healthcare Power of Attorney?
It is a document in which you designate someone as your agent to make health care decisions for you if you are no longer able to make your own decisions. It is extremely important to be cautious and appoint a person that you trust as that individual will have the authority to talk to your doctor, review medical records and test results, authorize treatment, select a hospital or long-term care facility, and decide whether to maintain or withdraw life supporting measures.

What is a Durable Power of Attorney?
A Durable Power of Attorney allows you to name someone to make financial and legal decisions for you if you are unable to make your own decisions. It is only good for as long as you are alive. In real estate transactions, it is common to use this document to appoint someone for the limited purpose of signing the closing documents for you if you cannot attend the closing yourself.

What if I do not have a Healthcare Power of Attorney or a Durable Power of Attorney?
If you do not have either of these documents executed and you cannot make your own decisions, someone will have to go to court and ask a judge to appoint a guardian for you.