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.


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