TI time is here again and lenders throughout Chicago and the surrounding suburbs are cringing as they prepare to explain to home buyers and home owners in the midst of a refinance that they will have to bring a little more to the closing.
What, might you ask, is TI and why does it affect the bottom line? Well, TI stands for Title Indemnity and it provides a means for title companies to ensure that property taxes for transactions occurring at the end of the property tax billing cycle are paid in full. While this should be as simple as looking at a property tax bill and paying the balance, it is more complex that that. In many counties, the tax period has ended without actual property tax bills available to pay. So the installment is due, but without a tax bill, there is no way to figure out the required payment. The solution is to collect a best guess amount plus a cushion in anticipation of the bill and paying it when it comes due.
To execute a TI, a title company collects a multiplier of the last installment and holds it in escrow until the tax bill comes out. The reason they collect a multiplier is to ensure they have a sufficient cushion to account for any tax increases. The total amount is typically around 1.5%, but some title companies, such as Chicago Title, will collect as much as 2.5% of the last installment. As an example, if the last tax bill was $5,000, you could be required to escrow as much as $12,500 with the title company for the period from the closing of your mortgage loan to the day the tax bills become available. In most counties, like DuPage and Kane, this is only a month or so. In places like Cook County, however, this period can extend for up to 5 months; so planning for this inconvenient aspect of real estate finance is a must.
Let me know if you need help navigating the lending process. And if you’re still in the home exploration process, there’s never a better time to ramp up your home search!