Yes, that's right. So unless you can pay cash for a piece of real estate, expect to have a problem getting a mortgage.
I am examining title today for the purchase of a property that went through foreclosure. I saw FTL on the cover notes and at first glance assumed it was a Federal Tax Lien against the former owner. Too bad, it's not. It's filed against the buyer and there is also a PA state income tax lien. Hope they can pay cash for the house - probably not - because this deal is dead. The income tax liens take priority over the mortgage and so even if the lender chose to grant credit approval, they wouldn't accept third position in title.
Looks like the $272 I've advanced for lien letters and abstract plus our time and effort will not result in a closing. We'll bill for services rendered and call it a day. That's a shame.
12 comments:
Hi Diane -- That is tough. Altough I consider you pretty lucky if you can collect your out of pocket costs ... it doesn't seem we are ever able to.
Also, (you are probably aware of this) there is an IRS revenue ruling out there stating that the IRS will not enforce borrower's FTL's against the mortgagee for mortgages used in the purchase of their homestead. Although, off the of my head, I am not sure if any states handle it that way (and from your post I guess PA doesn't).
BC
I underwrite for a number of southern states, and we take the position that a purchase money mortgage has priority over FTLs and liens. Tennessee has a statute on it. The lien attaches the instant the buyer takes title, yes, but the purchase money mortgage hits the instant before that! You sure about this one Diane?
Well, thanks for raising the issue, Mamalujo. I've been trained that they attach and take position before the purchase money mortgage.
Let me re-check with my underwriters because that would solve loads of problems and then I'd have to ask why even check buyer judgments?
Underwriter #1 says they don't take the chance that the recorder won't get the purchase money mortgage properly recorded within 10 days. They do not permit insuring over revenue liens at all.
Will check with underwriter #2 and get back.
Looks like Underwriter #1 is relying on 42 Pa.C.S Section 8141:
§ 8141. Time from which liens have priority
Liens against real property shall have priority over each other on the following basis:
(1) Purchase money mortgages, from the time they are delivered to the mortgagee, if they are recorded within ten days after their date; otherwise, from the time they are left for record. A mortgage is a "purchase money mortgage" to the extent that it is:
(i) taken by the seller of the mortgaged property to secure the payment of all or part of the purchase price; or
(ii) taken by a mortgagee other than the seller to secure the repayment of money actually advanced by such person to or on behalf of the mortgagor at the time the mortgagor acquires title to the property and used by the mortgagor at that time to pay all or part of the purchase price, except that a mortgage other than to the seller of the property shall not be a purchase money mortgage within the meaning of this section unless expressly stated so to be.
Around these parts I'm not even looking for a search on the buyers (because the purchase money mortgage trumps everything but ad valorem taxes).
I'd let you do it!
"if they are recorded within ten days after their date"
This is the operative phrase.
Still haven't had a chance to call Underwriter #2, but I'll be surprised if they agree to insure.
So, Anon, you're very confident in the recording system of your agents, I take it.
I have the luxury of a statute that specifically prioritizes purchase money mortgages! But don't forget bankruptcy too; the trustee will have a non-contemporaneous mortgage set aside. Still, my starting point would be to trust my agents to comply with the statute and would thus allow them to insure here. Until they proved me wrong!
Two comments:
Underwriter #2 has checked in and also will NOT permit insuring over federal or state liens that attach to after acquired property.
Both underwriter acknowledge the purchase money mortgage issue, however, both believe there is a reasonable argument that the tax liability may prime the mortgage -added to that the risk of some failure at the recorder's office. Neither underwriter will take on that risk. Considering that the amount of the liens exceed the policy and any failure would be a total failure of title, I think their prudence is justified.
The absolute ignorance of most title agents and slacker mentality when it comes to following procedure even when they understand the procedure, would make me shudder if I were an investor in your title company. Good luck!
I'm trying not to take offense at your investment choices when in my humble opinion all I'm doing is helping my agents get their deals done and not have to eat $$$ anytime a matter comes up that could possibly result in a claim. Underwriting is an art, not just a matter of avoiding all possible risk. I would shudder if I were an investor in a title underwriter that would never exercise a little common sense judgment on an easily insured issue.
Understood. Sorry if the barb was too sharp.
I wonder if your underwriters might be willing to apologize for having so little faith in your ability to record your mortgages within ten days; clearly you are an astute agent, and I wish you were one of mine!
The risk of improper recordation was secondary to their concern about the lack of case law supporting the statute. Neither wanted to make case law and neither were satisfied that the liens [state and/or federal] wouldn't prime the mortgage.
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