Title insurance does NOT cover the seller.

Last week I was contacted by a seller in a transaction we had closed last month.  He was concerned because he had received a notice of tax sale for the property and thought we had paid all of the delinquent property taxes.  I asked him to fax or email the tax sale notice which he did.

The first thing I noticed was that it was for a different tax map number. My immediate concern was that this may have been a parcel that they intended to sell but had not clearly identified it as part of the transaction.  The tax sale notice was for a Lot No. 108.

Our file was scanned so I was able to quickly determine that we had insured the conveyance for two lots - 107 and 108 - but they were both a part of ONE tax assessment and it was a different tax map number than the number on the tax sale notice.

Ah-oh...a merger...an undiscovered merger - likely not discoverable by a regular title search.

If you don't operate in the rural counties of Pennsylvania, you might think a merger of a two tax parcels would be clearly notated by the tax assessment office and thus easily discovered. That is the case in some counties but not all. In the rural county in which this property is located, the tax assessment office makes no such notation and so unless an abstractor stumbles onto something, they won't find it.

I asked our abstractor to re-check the assessment and get back to me.  He did and reported that in 2010 our seller had sent a letter to the tax assessor asking that the two lots be merged into one tax assessment.  The following year -2011 - both lots were billed under one number.

The delinquent taxes we collected from the seller at our closing were for years 2009 through 2011.  We did not know at the time of closing that there was outstanding additional taxes for years 2009 and 2010 under a different map number.  It would have been helpful if the seller had noticed but he didn't.

I contacted the seller and advised that he needed to pay the tax.  He refused and insisted that the title insurance should cover this error.  I explained that the title insurance protects the buyer and the lender.  I further explained that the seller gave a warranty to the buyer and signed affidavits for us that acknowledged he is responsible for the taxes and that if he doesn't pay, we will pay and then sue him.  I said this nicely, not in an angry way but with no wiggle room.

To help him better understand I said that if we had known about the tax parcel merger, he would have paid this additional money the month before at closing, right?  He's just paying it now, instead of then, nothing more, nothing less, just a month later.

So, I contacted the lender and the buyer - they know I am giving the seller a week to pay before we step in and take care of it.  I am hopeful the seller will ante up, but either way, the owner and lender are protected.

This is a good example of a title insurance claim - one that doesn't get logged at the title company or show up in the statistics.  We just resolve it and move on.