We have been working with an out of state limited liability company who is buying real estate in PA and flipping it on E-bay. He refused to register as a foreign LLC with PA so the bureau of corporations cannot issue a clear corporate lien certificate. We have confirmed with our title underwriter that this type of business activity is subject to corporate tax issues and therefore we are required to obtain a clear corporate lien certificate.
As his buyers are all cash, we offered to close with an exception in the owner policy but the buyer does not want to accept the lack of coverage.
In his refusal to face this liability, the seller has disclosed that no other title agent has raised this issue in any of his other transactions. I said that perhaps they simply put an exception in the coverage and failed to give the consumer notice. [Of course, they may have overlooked the issue entirely.]
He wanted to know what the real risk was and I said that should the Department of Revenue discover his business activities in the Commonwealth and his lack of compliance with their tax rules, they have the right to place corporate tax liens against all of the real estate that has passed through the LLC. The buyers are at risk.
Thankfully we required a nonrefundable deposit from this seller before releasing the title insurance commitment because it's clear to me he'll just switch it to a title agent doesn't know or doesn't care.
Any thoughts?
2 comments:
Turn of the tide.
We have a construction loan with mechanic's lien issues (started work already!). Our position was to either 1) wait or 2) produce a mountain of paperwork for every draw.
The LO and borrower were not happy. We suggested they check with the ABA of the LO's bank if they really wanted to close ASAP.
Guess what - same answer! Nice to be vindicated, but more important - last year the answer from an ABA might have been very different (like - no problem, we'll close that).
I think the industry might be getting religion on claims.
There is hope. Boy, if we can restore documentation and procedural policies in new construction, we'd go far towards protecting the consumer.
Untrained loan officers combined with untrained title agents and underwriters who turned their thinking cells off really put consumers at risk in these last ten or more years.
It time for some heavy remedial training for mortgage lenders and title agents. They need to give their consumers the tough love that works in a mechanic's lien scenario.
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