Tuesday, January 28, 2014

A wants to know why she should have to pay a tax that the title company missed.


Thank you for answering this email in advance.

I closed on my home 10-30-2013.  A clean Title was transferred.  I am now getting contacted by the title company stating I owe some property taxes.   The property taxes in question is from a sewer and recycling bill that was not paid in July (a bill I did not receive because I was living out of state) that automatically was applied to property taxes at the end of the year.  
Here is my issue; On the HUD-1 Settlement statement, #404 there is a credit for 2 months November and December (The bill comes out once a year in July).  The title company knew about the taxes owed, why did they not say anything about it at the time of closing?  Is it not the Title Company's responsibility to exercise Due Diligence?  It is not the title company's responsibility to investigate into the property and disclose what they find?  They found it, just didn't disclose it. I, the seller, should not be held liable for non-disclosure of information that was not discovered in the process of that investigation.  The  finding of the unpaid portion of the property taxes was not addressed at the time of  closing therefore would not be my responsibility.  Isn't that why we pay a title company and why we buy Title insurance?  Since the title was transferred free and clear at the time of closing The title company  is liable for anything that comes up Correct?   I, in no way, shape or form knew anything about this until January 4th 2014.  And the only reason I am being contacted is because the title company doesn't want to pay for their error.    If the research was done correctly this would have been noticed.  


Hi, A:  Thanks for letting me help you with this issue.  You are expressing the frustration that many consumers share when confronted with an error discovered after closing.

Let's start with the basic function of title insurance.  The insurance is for the benefit of the insured.  In the case of most purchase transactions the insured are the buyer - new owner - and their mortgage lender.  The insurance is not issued for the benefit of the seller.

Human error is one of the most common sources of title insurance claims.  Mistakes can happen at any stage of a transaction.  There may be mistakes at the courthouse, in the pre-closing examination, at closing or after closing.  The job of the title insurer once an error is discovered is to rectify it under the terms of the title insurance policy so that the "insured" parties are not injured.

The fact that the taxes were missed in the closing process does not negate the fact that you owe the tax.  It's a bit like a clerk giving you the wrong change.  You can't say gotcha and keep the extra any more than you would expect a clerk who shorted you to do the same back to you.  If the title insurer had made an error by charging you too much tax, you'd expect a refund, right?

So, here's how this is playing out.  The title insurer is making a demand to you to pay the taxes that you rightfully owe.  If you fail to pay the tax, they will pay it so that the insured are protected and then they will go after you in court.  In the end you will pay the tax.  Paying it now is the least expensive way to handle it. 

If you are in a bind and don't have the money, ask them if they will accept payments.  Some will, some won't.

I hope that answered the question.  Best wishes and I do understand your frustration.


Thursday, January 16, 2014

M wants to know if there is any way to get out of an escrow shortage caused by oversight in refinance.


We refinanced in August. The bank just sent us the dreaded escrow shortage letter. I called the company that handled our refinance and we tracked the error. The title company (so the guy says) only put our school tax on the paperwork. Then the refinance company missed that error and it all went through. The full tax amounts were all correct on all paperwork until title company missed the other taxes and sent paperwork back to company, then the company ALSO missed it. I feel that they are both at fault. 

      Fast forward to right now and by February 1st we either pay $1893 and our payment will still go up $100 (I understand that it must go up because they didnt factor all of the taxes.) or our payments go back to just $5 short of what they were before the refinance. This is a rental property so we refinanced to get a smaller payment and hope to sell within a year. (We are military and renting to prior military and we have an assumable VA loan). So, my question is, is there anything we can do besides scream from mountain tops which title company and refinance company not to use?

     The biggest issue I have is that we paid the title company $2,000 and they didnt do their job properly. The refinance company made money off of us as well and they also didnt find the error and processed the loan with incorrect numbers and we are the ones now paying for it. Do we have any recourse?


Good morning, M:

Here's the situation.  As the owner of the property you have personal knowledge of what the taxes are and should have been on the paperwork.  There are three parties responsible for reviewing the documents used at closing - the title agent, the lender, and the borrower.  Sometimes all make a mistake and miss an error.  It is always unfortunate but the taxing authority won't reduce the tax liability and you are the one who must pay it.

You could consult an attorney to see if there is any other option because you are military but I don't think in this case there is because the payments would have been higher from the initial estimates you had from the lender.  In any event, please check with an attorney, just in case.

Sorry this happened but I do believe the dreaded shortage is real and must be resolved.  Best wishes.


Wednesday, January 15, 2014

degradation of legal descriptions

Oddly, we had 2 title examinations last month in which the current deed contained a crappy legal description.  In both cases we looked to the prior deeds in the chain to see if we could restore clarity and found some quirks.

In one case we found that a perfectly good metes and bounds description which had moved forward from an old plan.  Wondering why the last deed was prepped with such a crappy description, we found our clue in the tax assessment.  At some point the tax assessor had changed the shape of the lot by removing from the assessment a portion of land that abutted a river and by adding land that was not a part of the lot as described on the plan.  This extra land in a hillside next to a curve in a road and the developer didn't convey it to anyone.  We think the person who prepped the deed got confused with the tax map and decided to make the description vague enough to cover the extra land that the people thought they owned.  We discussed the description with the attorney representing the seller and said we would only insure the lot as it had been described in the plan as we could insure ownership based upon the 60 year chain. We wanted that description restored in the deed.  He agreed to restore the old description and per the buyer's request added language in which the seller quit claimed any rights to the hillside land.

In the other case, there was no description, just a reference to a deed that was older than 60 years.  We asked the abstractor to go back to the old deed so we could recite that description and guess what?  When she went back beyond the 60 year period to pull that old deed she found an outsale!  One of the three lots our seller was conveying had been sold back in 1945.  The seller thankfully has owner title insurance and has opened a claim.  The seller has an old unrecorded survey showing that no improvements are on this third lot so the buyer decided to move forward with a purchase of the two lots and a possible future acquisition of the third if they fix the title.  Looks like a quiet title situation as the folks who bought the property in 1945 seem to have disappeared. 

Thursday, January 09, 2014

Will FICO scoring incorporate social media?

The practice is being used largely by startups that grant smaller loans, but the concept seems likely to spread. Fair IsaacCorp., which provides the credit scoring used in more than 90% of lenders decisions, says it is weighing possibilities for incorporating social media.

"There could come a time where certain social media could be predictive and we're looking at that, but it isn't yet," said Anthony Sprauve, senior consumer-credit specialist at FICO.