I know you are getting sick and tired of hearing about Act 93, but I have news.

Examined a title in Somerset County yesterday and we have our first transaction impacted by Act 93 of 2013.  Our seller owns 5 properties in the county that have delinquent taxes owing for 2012 and 2013.

Since the 2013 taxes haven't yet reached the "claim absolute" stage, we aren't concerning ourselves with them.  The 2012 taxes, however, are claims absolute and therefore are "reduced to judgment" and must be paid in order to clear the title for our buyers.

Total additional tab to our sellers?  They are paying roughly $6000 to clear 2012 taxes on the 4 extra properties so that they can convey the 1 property to our insured buyer.

We can mark this one as a win for the municipality since the deal did not fall thru.  The sellers are elderly and own the property free and clear.

another unintended consequence of Act 93 of 2013

As we have discussed in previous posts, PA Act 93 of 2013 creates a system by which municipalities can file personal judgments against property owners who also have in rem delinquent property tax liens. I have been arguing that this new law will set in motion a whole lot of unintended consequences never envisioned by lawmakers.

Here's another one.  HOW DO JUDGMENTS IMPACT FICO SCORES?

Google that and you'll find that personal judgments are found in the FICO process and impact FICO scores, even when the judgment has been paid.  If you have a bad debt and a judgment related to one incident, they both impact the FICO score so theoretically if FICO has the ability to see an in rem property tax lien - possible in some counties - and also sees the Act 93 personal judgment, the property tax obligation has a two stage punch on the property owner's FICO score.

Judgments, whether satisfied or not, impact FICO and sit on a credit report for up to 7 years.

QUESTION:  How will lawmakers react when constituents start calling to say they can't get a new mortgage because Act 93 judgments - even if paid - are sitting out there lowering their credit scores?

Thus far most of my arguments against Act 93 of 2013 have been on behalf of consumers who own more than one property.  This FICO angle is a concern for EVERY property owner who gets into temporary financial difficulty.  Who doesn't know someone who had a bad financial set back beyond their control?  If a consumer gets behind on their property taxes for more than one year in PA, even if they pay the tax in the second year, their FICO credit score moving forward for the next SEVEN years will be lower.

Lower FICO credit scores .... what are the long term consequences?

Act 93 of 2013 was born in good intentions but the more we think about it the worse it looks, eh?

PAR article on Act 93

Confusion regarding a recently signed bill has created some misunderstandings about how it will affect real estate and transactions.

“Act 93, originally House Bill 388 (Parker, D-Philadelphia), only changed how municipalities reduce property tax claims and tax liens to a final judgment in that county,” said PAR legal counsel Brett Woodburn. “As a result, municipalities no longer have to incur the expense of suing delinquent property owners to get a final judgment. This really expands the arsenal of weapons that municipalities have at their disposal to collect delinquent taxes and fees.

http://www.parjustlisted.com/archives/20537/comment-page-1#comment-2867

Be sure to read the comments.  Here is my response to Brett Woodburn's comment:

I agree that the laws enforcing money judgments have not changed. Presuming - as I have been told - that municipalities are on board and filing money judgments against delinquent property owners, what we have is a massive new overlay of money judgments attaching to real property.  It does not take an execution of a money judgment to make the judgment attach to real property.  It automatically attaches.  While these liens are attached to parcels, they cannot be refinanced or conveyed with good title until the liens are satisfied.  The unintended impact of Act 93 is to make distressed properties harder to sell, and in some cases impossible to sell.

The unintended consequence of allowing municipalities to forego the thought process involved in suing for final judgment is to take out of the mix review by the court and an opportunity for defense by the property owner.  The old system might have been costly and time consuming for municipalities, however, review by a competent attorney prior to filing suit would help municipalities consider which individual collection circumstances would be helped by the filing of such money judgments and which would be impeded.

consumers - PLEASE - do not invest money into a house before you get the title insurance commitment

We had a title order come in.  The transaction had been moving forward to closing and suddenly they remembered to order title insurance.  The order came in with the request to set up closing as soon as we could.

When the abstract arrived I hoped for a nice clean title so these folks could have a fast closing.  What I saw when I opened the report was a foreclosure in process and numerous state and federal liens and judgments related to a business failure.

What were these folks thinking?  This isn't a title that can be rushed to close.

Wait - I tallied up the liens and even without payoff figures in hand the total was far more than the agreed sale price.

I called the listing agent and found that the seller had no idea that personal judgments and liens would attach. They thought all they had to worry about was the mortgage.

I called the buyer and got a very disappointing report.  The buyer has been living in a mobile home on a rented lot.  They have already sold the mobile home and given notice to vacate the lot by the end of this month.  In addition, they have invested $2000 in this property by making numerous repairs.  They say the sellers wanted a fast closing and the real estate agents had pushed them to make the repairs as quickly as possible to clear municipal hurdles prior to closing.

Neither the real estate agent or the mortgage loan officer suggested to the consumer that they wait for the title insurance commitment.

Why would everyone ASSUME that the title to the property is clear if no one checked?

I had to tell a tearful and angry buyer to make arrangements for another place to live at the end of the month.  It will take time but we'll see how the payoffs come in and whether this transaction can be saved.  In the meantime, the foreclosure process is moving forward quickly.

Our consumers, the buyers, are in a quandary.  Should they just move on and find a different house?  Will they ever recoup the $2000 they sunk into this house? Maybe they should wait for the liens to be divested by foreclosure and buy the house later, eh?  Do they want to live with their parents for all that time?

All of this could have been avoided if the consumers were thinking for themselves and told the real estate agents to back off and wait for the title insurance commitment.

FOLKS.  Please be a savvy consumer.  Don't sell the house you live in before you are sure you have another place to go.  Don't put money into a house you don't own unless ALL contingencies have been eliminated and you have a full disclosure on the situation.

replace a lost owner policy with a duplicate original

Hi Diane,

I saw your blog and hope you might be able to answer this question.  I bought my home 7 1/2 years ago and title work

was done at that time.  By who I can't remember and I inadvertently destroyed the original policy while getting rid of old paperwork.

I did contact the closing attorney but his office might not have those records.  Is there a way to obtain a copy of the original policy?

It seems even though there was clear title when I bought it, now in selling there are judgements from the previous owners.

Any help would be deeply appreciated.

Sincerely,

A

Hi, A:  If the closing attorney was the one who issued the title insurance, you can request a duplicate original policy directly from the attorney.  If he is uncertain how to issue a duplicate, he should call the title company underwriter.  They all have a procedure for producing duplicate originals.  Mortgage lenders often make this request when their loan policies get lost in transit.

I would be really surprised if the attorney doesn't have any records from 7 1/2 years ago.  Everyone uses computers now and even if he destroyed the paper files, I can't imagine that there isn't something in his software.

Frankly, I've never encountered an attorney who didn't keep all their paper files. I call law offices all the time to ask questions about old files when we are trying to resolve title problems.   It's just a matter of giving them time to go find the file as it might be stored off site.  You might offer to pay for their effort.

Hope this helps. ;)

Diane


PS  You should also look for the HUD-1 Settlement Statement which should show that you paid for coverage and it should also identify which title insurance company was paid.  The attorney may have records of checks issued from the closing funds which could tell you who got the title insurance premium.

Finally, if you cannot establish proof that you have title insurance, you may want to hire a competent title insurance attorney to review those judgments.  I find often that sellers are asked to pay for liens that are expired or not valid.  Defend yourself before paying.  Delay closing until you have exhausted your defense.  If you close and pay the judgments expecting to recoup damages later there is a good chance of getting no help.

mortgage fraud rears its ugly head once again in an unexpected place

We've been working on a refinance transaction for a number of weeks.  The file has been stuck in mortgage underwriting because we reported a pending lawsuit and the borrower didn't know how to handle creating a letter of explanation or why one was needed.

So, last week, finally, the borrower's attorney provided an explanation which I thought was terrific and if I had been the mortgage underwriter, I'd have approved the mortgage.

Imagine my shock yesterday when the mortgage underwriter requested that I amend my title insurance commitment so it showed no pending lawsuit.

She said they had a guideline that says they will not approve a mortgage if the borrower has a pending lawsuit.

HUH?  I know that sometimes mortgage underwriting rules defy logic but anyone could have a lawsuit filed against them without merit and was she telling me that these people cannot get mortgages?  I have to believe that this is a misinterpretation of the rule, however, IF that is the rule, then so be it.  This borrower has a pending lawsuit and if your guidelines say you cannot approve his mortgage, then deny the loan.  Don't ask me to scrub the title commitment to show no pending lawsuit because that is MORTGAGE FRAUD and I will not go there.

As I had this conversation with the underwriter through emails and on the phone, I did suggest that I did not think this was her intention but that she needed to realize that this is really what she is proposing.  I calmly asked that she review this with her supervisor and she said she would.  I am awaiting their response and do hope that this is a rogue underwriter who needs more training and not the beginning of yet another round of mortgage lending gone bad.

Fingers crossed.

abstractor missed a judgment in the final bringdown

I have a transaction on my desk with a title claim. We issued title insurance in May of 2005. We are now doing the next transaction, our insured is selling. We ordered title through redacted.

redacted is reporting a judgment in the amount of $458.69 against the former seller. This judgment was filed at the courthouse on the day of our closing.

The original title work was dated 4/4/05. AP ordered a bringdown on 5/3/05 which came back clear. We closed on 5/6/05, the day the judgment was filed. We disbursed and the seller got over $4000 in proceeds. We sent the deed to redacted for a final bringdown and record which they did on 5/10/05. redacted did not notice the judgment and simply recorded. I have to wonder if they decided not to run a bringdown again since they had just run one a few days earlier.

I spoke with redacted at redacted and she has agreed to pay for the judgment.

This is a perfect example of a title claim resolution which will NOT show up in the official numbers. Interesting, huh?