taxes are the topic this week

In one case, the seller told the buyer that the property had a homeowner exclusion which allowed for a discounted rate.  Turns out that wasn't true.  Homeowner exclusions are generally processed once a year by the tax assessor.  Miss the cycle and you pay more tax.  This buyer can apply for the exclusion but got stuck paying for the extra tax for at least this year.


In the other case, a buyer of a condo in a converted building just received a bill from the tax assessor for a catch up period back to the conversion.  This assessment change was pending at the time of the sale but it's not determined if anyone knew who could have informed the buyer.

In both cases, the buyers were careful when they closed.  It's hard to say if either case is worth pursuing the seller or filing a claim against title insurance.  It doesn't cost anything to try a claim, however, title insurance does not cover tax bills that are not yet due and payable. A case would have to be made that the title agents had evidence in hand before closing that these taxes were incorrect or incomplete information.

I wish these homeowners much luck and am posting their situations just to keep you all informed about things that can and do happen.

TRID.....

I love the Closing Disclosure forms.  I have to say it.

What is killing me is the collaboration process.  It's like a bomb went off in the industry and we are working with systems and procedures cobbled together in the aftermath of the explosion.

I continue to hope that there will be a normalcy soon.

[HAHA Just noticed I said that "bomb" comment in a previous post.  Just goes to show THAT'S EXACTLY HOW IT FEELS!]

TRID - the beast moves on....

Well, it's November 23rd and I'm getting to like TRID.  I think when everyone gets the hang of it, we'll all be happy.

just a note to say TRID implementation was like exploding a bomb in the middle of the real estate market....

Everyone just needs to take a breath because ALL transactions are on the slo mo trail, even cash.

We have software issues and every lender we are working with also has software issues.

the trouble with TRID!!!!

Is that it was wholly unnecessary.

Yikes....first TRID closing scheduled

So, how are ya? Feeling like the title world is about to change?  Yea. I hear ya.  Me, too.

Okay, so we have a bunch of TRID transactions in process.  We like to use colors in our office so TRID transactions are in green file folders.  Everything else is in our usual blue.

FYI - We use these colors because the are CALMING colors and every title insurance office needs as many calming influences as we can get, right?

Well, one of these little greenies made its way to "clear to close" status today and here's what happened.

The loan officer said the consumer's expectations were to close on November 6th.  I checked with the lender's closing department and they have a straight "need 10 days notice to schedule" plan in place for TRID closings.  I don't disagree.  I think that's smart so I called everyone and explained the reality of TRID and they said okay to the new date.  PHEW!  Step one okay.

I'll report back as we move through the process.

Keep calm and carry on!

TRID black hole...interesting article

According to the CHLA’s letter, the TRID rules stipulate that a that a lender deliver the Loan Estimate to the borrower within 3 days after receipt of a loan application and at least 7 days before consummation, which is defined as when the loan documents are signed.

The CHLA warns that after the Loan Estimate is delivered to a borrower, a change in in circumstances like the borrower needing to push the closing date could place lenders between a rock and a hard place.

http://www.housingwire.com/articles/34817-community-lenders-warn-cfpb-on-trid-black-hole

follow the link to an article worth reading if you are a lender or title insurer

It is this holding that resulted in most of the substantial increase in the disgorgement amount ordered by the Director. The ALJ had held that the RESPA violations occurred at the time of the closing of the underlying loans, and thus limited disgorgement to those loans that had closed after July 21, 2008 (three years prior to the CFPB’s gaining its authority to bring administrative enforcement actions). Director Cordray instead included all payments made by the mortgage insurers to Atrium after July 21, 2008, regardless of when the underlying loans closed. This substantially expanded the number of payments subject to disgorgement.

http://www.jdsupra.com/legalnews/cfpb-issues-final-decision-in-in-re-phh-54552/

3 day rule

earnest money aka hand money

When making an offer to purchase real estate, the buyer is typically asked to put up a good faith deposit.  This deposit is referred to as earnest money or hand money.  It means you are serious about the offer and willing to lose this money if you back out of the transaction.

Sales contracts often have contingencies that may allow for a return of the hand money.  For instance, if the sales contract has a contingency for a property inspection and the inspector finds a problem that the seller had not previously disclosed to the buyer, this would be a circumstance in which the hand money would be returned to the buyer if the sale fell through due to the discovery.

The amount of hand money is negotiable and could be determined by local custom.  In some areas you might get away with $500 but in others may be expected to put down $5000.

So for the readers who are buying, expect to have a hand money deposit and if you back out of a sales contract without a legitimate contingency failure, expect to lose the hand money.

For readers who are selling real estate and for Realtors who may be reading this, here are some pitfalls to avoid.

First, get the hand money up front.  I firmly believe that the offer to the seller should be with a copy of the hand money check in hand.  I don't like the idea of giving a buyer several days to come up with the money.  The seller is being asked to make a decision of price and to take their property off the market and if there is no hand money, even for a few days, the buyer has nothing to lose by changing their mind and walking away from the deal.  I suggest that sellers ask for a copy of the hand money check.

Second, make sure the real estate office deposits the check and is not holding it.  You have to move the money into the escrow account to protect it and to have control.  If the check hasn't been cashed then the buyer again has nothing to lose by walking away and stopping payment on the check.

What happens if the hand money check bounces?  When you have a bounced hand money check, you have a big red flag that the buyer may not be truthful.  Yes, it could have been a fluke and just a simple mistake but it also could mean you will have problems with the closing.  If the hand money check bounces, even if you do get a good replacement check, Realtors should tell the seller and the title agent or attorney so those parties can be cautious.

Why might they want to be cautious?  Well, what if the seller allows the buyer early access to the property for repairs, improvements, etc. then in the end the buyer can't get the mortgage or doesn't actually have the money to complete the transaction?

We've had two recent transactions involving fraud.  It turns out that BOTH had bounced hand money checks and in both cases, the buyers provided replacement checks so the Realtors did not tell anyone about the bounce.  One case was terrible as it involved the buyer presenting a counterfeit cashier check for a cash closing. He's incarcerated pending trial.  The other case was stopped before it closed because we got a bad vibe and started asking questions. That's how we learned about the bounced check.  With that info we suggested to parties that they be very careful and so that lead to the discovery that the letter from the bank that had been presented in the cash transaction was a fraud.

The earnest money aka hand money deposit is a meaningful part of the transaction and its importance cannot be overlooked.  It is the first test of the willingness and ability of the buyer to perform under the terms of the sales contract.  Be a savvy buyer, seller, and Realtor.  Make sure that everyone is serious about that first deposit. It lays the foundation for the transaction.

Be a savvy consumer. Pay attention at closing.

The company was given $3100 at our closing last June and neglected to pay the School Real Estate Taxes that said money was put in escrow to pay. When we received an invoice showing it was unpaid, the school district had added penalties and fees. We contacted Diane at The Closing Specialists and were told that it was our fault and that we had to pay the fees and penalties. Unacceptable. She then said she would remit the $3100 when she felt like it rather than when it was due. Bad business.

Hi, Sherry: As we discussed yesterday, the escrow agreement you and your husband signed at closing clearly stated in bold that you were responsible for getting a tax bill to our office. The statement we received yesterday was the first statement we received. The amount owing was higher than the escrow balance. The escrow agreement also said that you were responsible for any amounts owed beyond the amount held in escrow. Upon receipt of your statement while talking with you on the phone, you were clearly upset and told me you would not pay the difference. I said we might either send the full $3100 to the tax authority or might hold it and wait for you to send us the difference. 

After having a couple of minutes to think about the best solution to your problem, we cut a check in the amount of $3100 and mailed it to the tax authority. I then sent an email to the email address we had on record, I believe it was your husband's email and let him know we mailed the check and suggested that you send the remaining balance to the tax authority to avoid the filing of a lien against your property. 

All actions performed by The Closing Specialists in this regard are according to the terms of the escrow agreement. We understand after having received your email later in the day that you are in the title business operating as an abstractor. This puts you in an unusual position as a consumer. Unlike most consumers you are professionally familiar with the tax collection process in PA and also, as an abstractor trained to read documents carefully with close attention to detail. Every document related to a real estate closing is important. We do understand that there are many documents that will be signed at the time, however, that doesn't mean that the terms of the documents can be ignored. Thank you for taking the time to post this on Facebook. I'll include it in a discussion on our blog, Title Insurance Talk. It's always good to remind consumers to pay attention. Every party in a transaction has their part to play. 

Best wishes. Diane Cipa

Did the condo come with parking spaces or not?

Diane,

We bought a condo unit that has had two indoor parking spaces since this building went condo in 1985. This unit was a REO foreclosure by the VA and was subsequently listed for sale by a local agent. The MLS listing showed the two spaces clearly identified. After our cash offer was accepted and we got the various forms to review and sign, we noticed that there was no mention of the parking spaces and we and our agent questioned the selling agent, and the title company that the seller has selected to handle the closing, several times about the lack of this inclusion. They kept assuring us that there was no problem. We went to closing prepared to refuse to close unless it was resolved.

> The closing attorney went to great pains to tell us that everything was above board and that detailing the specific parking spaces was not done anymore on the deed as they could be bought and sold outside of the unit itself. He said as long as the deed had the statement “including limited common elements” then we were protected. So reluctantly we went through with the closing, signing the various pages that required signatures. He then made copies, assembled the various documents with the signature pages and gave us the whole package in a folder. He had a copy of the deed from the previous foreclosed owner that he also gave us. I know the proper thing to do was to just walk away from it until things were resolved but relied on his objective statements that it was done properly. A number of warning flags should have caused me to be suspicious, especially when he did not go over every document in detail before having us sign it. Evidently, he felt that the subject had been already discussed in detail so there was no need to go over the deed.

Once we got away from there and I reviewed the deed, I saw that there was no mention of “including limited common elements” at all. I saw a number of items of concern on the deed. The preparing attorneys stated that they did no title search nor made any representation about the accuracy of the legal description, as well as the legal description omissions. I determined to do my own title search and went to the Alexandria VA courthouse and tracked each deed for this unit. Every deed back to the original condominium document assigning indoor parking spaces to specific units had the appropriate comment  “…, including limited common element parking spaces 96 and 97, established by Condominium Instruments…” in the legal description, except one. To my surprise, and which had been omitted from discussion at the closing, there was another deed between the deed of the foreclosed owner and mine, which I should have known if I had thought about it. When the VA foreclosed there was a Trustee’s Deed prepared that made no mention of the “including limited common elements”. I can only assume that the attorneys that prepared the deed that we got at closing used the Trustee’s Deed from which to copy the legal description.

Now if I can find this with a little looking at the courthouse then anyone doing a title search before issuing owners title insurance would have easily seen the difference and taken corrective action, or so it seems to me. There is no indication that a title search was made, or if it was done, was done incorrectly.

I relayed this problem to the management office of the condo assn. and they sent me a strongly worded letter stating that since I cannot prove ownership of the two spaces, I am prohibited from using them and they will keep watch that I don’t disregard their letter. I have copies of the previous deeds, the letter from the condo, the title insurance, the HUD-1, and am going to write a letter to the titling companies, the VA, the selling agent, and anyone else that might have an interest in this situation.

That is my story, do you have any concerns that I should be aware of, or strategy to follow?

D

Hi, D.  First,please be aware that I am not an attorney and am not offering legal advice. To be certain you are covering all bases, I would suggest hiring an attorney to straighten out this mess.

That said, the first thing I would do is to look at the title insurance policy if you have received it. It may take up to 60 days after closing to get the policy.  If you don't yet have the policy, look at the title insurance commitment.  You should have received this prior to closing so you would have a chance to review what property was to be insured and what the exceptions are.  If you did not receive a title insurance commitment prior to closing, report this to your state insurance department.

If you have either the policy or commitment in hand look for the page that describes the property.  It might be called Schedule C.  The legal description should identify the condo unit and typically would also make note of common elements included with the unit.  If you see common elements listed there then the title insurance company has insured that whatever is described there is part of what you own.

I would also get a copy of the Declaration of Condominium.  Look to see how your unit is described in the Declaration.  There may be a specific reference to the common elements assigned to your unit.

Don't get hung up yet on the condo association comments because in my experience very few condo managers or officers actually have read or understand the condo documents.  You need to read them yourself and either on your own or with the help of an attorney get them to understand what common elements go with your unit.

Don't get hung up on what deeds say.  If the Declaration says that each unit gets two parking spaces, then you get them even if it's not in your deed. Every deed does not have to specify all information that is already on record at the courthouse.  For instance, if you buy a house in a plan, the plan says there are roads. Your deed doesn't have to describe the roads, they are already described on the plan document.  As long as the deed describes the correct unit and the correct condominium, then whatever the Declaration says you get, you get.

Now, it is entirely possible that the REO people who marketed the property had incorrect information about parking spaces.  If that is the case, when you look at the Declaration, you will find that you don't get parking.  Perhaps it is sold separately.  In that case, your attorney will help you sort out who did what wrong and how it can be fixed.

The key to everything is reading the Declaration document - including any revisions or amendments.

Good luck and I would like you to report back to let me know if the parking was in the Declaration.  I'm kinda curious!

Diane

Hello and happy spring!

Just wanted to let you know I'm still living.  ;)

I have a post ruminating about an incident with a counterfeit cashier check. Will get that one up as the story matures.

In the meantime I've been answering lots of questions by email.  Keep em coming!

Hey, why do I have to escrow money if the estate paid a deposit for PA inheritance taxes?

Hi, Diane,

I really enjoy your blog. 

My brother passed away.  We are selling his house.  As you have mentioned on your blog, the title agent is escrowing Pa Inheritance Tax.  The problem is, we have already paid the tax of $6546.  The title agent is escrowing $16,200.  There is no negotiating.  The buyer is a cash buyer and is not buying title insurance.  So when the title agent said "its the title insurance company" there is no title insurance company.  At least that's what I think I've learned from reading your blog.

We paid the tax with the 3% discount but can't file the return until the attorney gets some additional things done.  The attorney talked to the title agent but it didn't seem to matter.

I thought I would check with you to get your opinion.

Thank you for all your help,

J

Hi, J:

Cash buyers often buy title insurance so there may be insurance involved.  If they aren't buying insurance and they are working with an attorney, the attorney might be giving a personal guarantee of title.  If they are working with a non-attorney title insurance agent and that agent is not issuing a title insurance policy, the title insurance agent is acting outside of their license to conduct business.

All that said, we would also require an escrow if the inheritance tax return isn't filed even though a payment has been made.  You cannot believe how many returns are improperly filed or not filed at all.  We regularly have abandoned inheritance tax escrows.

Some title agents will accept an attorney letter of guarantee that they will file the proper return and pay all taxes.  This is a personal guarantee from the attorney.  We accept these letters if we have a high comfort level, but agents are not required to accept guarantees.

The bottom line is that until that inheritance tax return is properly filed and the title agent can surmise that all taxes have been paid, they have a right to refuse to insure.  The alternative to an escrow is to postpone closing until the return is filed. Most attorneys can hustle and get a return prepped quickly if they need to.  If your attorney can't get this done prior to closing, perhaps this gives an incentive to get it done quickly for the escrow release.

Hope this helps.  BTW The amount of these escrows are not the amount of estimated tax.  A title agent till guesstimate the tax based on the relationship of the heirs to the deceased, then they will increase the escrow to a point that provides an incentive to the estate to get the job done quickly.  No title agent wants to hold an escrow.  It's a bunch of work that we don't really get paid for.  So, on that note, they are actually trying to help you close, rather than postpone.  ;)

Diane