I short sold my house in July 2011 and it was found in the County Tax Bill that the City had a Lien on the property for past due sanitary charges. I was not aware of the charges or lien. Chicago Title was used by the buyer for title search and they did not find any liens on the title either. Now the Title Company has paid the lien in full but are requesting me (Seller) to pay them the lien amount or they will use Attorney and collection and I will incur additional charges. I was always been told that if there are any liens found after the Close of Escrow it is the responsibility of the Title Insurance Company. Are they allowed per Law in the State of California to recover any amounts they paid for failing to find the lien prior to close of escrow. Please let me know what is your recommendation.
From the perspective of the buyer who purchased the insurance, yes, the liens discovered post closing would be the responsibility of the title insurance company, however this insurance does not extend to the seller.
Even if you were unaware of the lien, the responsibility still rests with the owner of the real estate. If a foreclosure had taken place, depending on the laws of your state this lien may or may not have survived foreclosure. In Pennsylvania, the mortgage lender who foreclosed would have had to pay it.
So, in the short sale, only the mortgage lien was released. Any other liens, even if found after closing, stay attached to the real estate. For this reason, title companies insist upon warranty deeds and affidavits. In these documents you would have given a personal guaranty of title. It is the warranties in the deed and other affidavits you signed at closing would be the basis for legal action against you. If you did not sign any affidavits or give a warranty deed, you might have a defense. In either case, you may wish to talk with an attorney. Some times the size of the lien determines how much effort the title company wants to expend in collection. Having an attorney at your side does present a more formidable challenge.
Good luck and I wish you well.