Illinois recently amended Section 720 ILCS 5/32-13 of the Illinois Criminal Code to create a felony level offense resulting from the creation of a cloud on title that either (a) has a value in excess of $10,000, or (b) results from a second or subsequent offense, due to the recording or filing of a document which you know to be without a basis in legitimate legal theory. A “cloud on title” is defined by the statute as “an outstanding claim or encumbrance that, if valid, would affect or impair the title of the owner of an estate in land and on its face has that affect, but can be shown by extrinsic proof to be invalid or inapplicable to that estate.” The amendment to the statute, which previously only carried a Class A misdemeanor penalty, goes into effect on January 1, 2014.
Protection for Attorneys
The statute contains an exception for an attorney, licensed to practice in Illinois, who in good faith files a lien on behalf of a client believing that the validity of the lien is supported by law, a decision of the court, or by a good faith argument for extension, modification or reversal of an existing decision of a court relating to the validity of the lien. Despite this protection, there is some speculation that the threat of severe criminal penalties will have a chilling effect on the filing of good faith liens, and even those which previously would have been filed by counsel.
The Language of the Statute
Unlawful clouding of title.
(a) Any person who intentionally records or files or causes to be recorded or filed any document in the office of the recorder or registrar of titles of any county of this State that is a cloud on the title of land in this State, knowing that the theory upon which the purported cloud on title is based is not recognized as a legitimate legal theory by the courts of this State or of the United States, commits the offense of unlawful clouding of title.
(b) Unlawful clouding of title is a Class A misdemeanor for a first offense if the cloud on the title has a value that does not exceed $10,000. Unlawful clouding of title is a Class 4 felony if the cloud on the title has a value that exceeds $10,000, or for a second or subsequent offense
(c) In addition to any other sentence that may be imposed, the court shall order any person convicted of a violation of this Section, or placed on supervision for a violation of this Section, to execute a release of the purported cloud on title as may be requested by or on behalf of any person whose property is encumbered or potentially encumbered by the document filed. Irrespective of whether or not a person charged under this Section is convicted of the offense of unlawful clouding of title, when the evidence demonstrates that, as a matter of law, the cloud on title is not a type of cloud recognized or authorized by the courts of this State or the United States, the court shall forthwith direct the recorder or registrar of titles to expunge the cloud.
(c-5) This Section does not apply to an attorney licensed to practice law in this State who in good faith files a lien on behalf of his or her client and who in good faith believes that the validity of the lien is supported by statutory law, by a decision of a court of law, or by a good faith argument for an extension, modification, or reversal of existing court decisions relating to the validity of the lien.
(d) For purposes of this Section, “cloud on title” or “cloud on the title” means an outstanding claim or encumbrance that, if valid, would affect or impair the title of the owner of an estate in land and on its face has that effect, but can be shown by extrinsic proof to be invalid or inapplicable to that estate.
Companion legislation gives Recorder of Deeds Power to Review Instruments for Fraud or Unlawful Cloud on Title and Refer to an ALJ
The Illinois Legislature also recently passed PA98-99 into law as 55 ILCS 5/3-5010.5, on July 19, 2013. This Act established a “Fraud Referral and Review Process” for deeds and instruments the Recorder of Deeds believes are fraudulent, unlawfully altered, or intended to unlawfully cloud or transfer the title of any real property. Under the new statute, if the Recorder of Deeds believes a document is fraudulent, the Recorder may refer the instrument to a county administrative law judge for review. If the ALJ finds by clear and convincing evidence that the document is fraudulent, the ALJ must issue a judgment to that effect with a notation that the fraudulent document may not affect the chain of title to the property in any way.
This Act is effective immediately and is mandatory in counties with a population of greater than 3 million (Cook County). Other counties may adopt the procedure 90 days after notice to the public.
Contact Sarah Holdener or Bill Sauerwein if you have any questions about these statutes or for assistance with your real property related issues.