our response to an attorney refusing to have his client sign the owner/seller affidavit

"This is a problem.  Despite Atty. redacted experience in successfully refusing to have a seller sign the Owner/Seller Affidavit, we must insist upon the seller signing the document.  It is a mandatory affidavit for title insurance.  Any attorney who issues a policy without having this affidavit is doing so in violation of their contractual relationship with the title insurance company.  We don't violate that contract.  That said, since this is a cash transaction, the buyer may, if she chooses, accept a broad exception to her coverage which would except risks covered by the affidavit - effectively gutting her policy. In my opinion the refusal to sign the Owner/Seller Affidavit is no less a concern than if the estate had refused to sign the Seller Disclosure or the PAR sales contract and the various related disclosures contained in the real estate brokerage file."

"The bottom line is that this transaction belongs to redacted and redacted.  I am prohibited by Atty. redacted from contacting Ms. redacted directly.  Otherwise, I would surely try to explain to her that the refusal to sign the Owner/Seller Affidavit is outside of the norm.  Section 16 of the PAR sales contract says "The Property will be conveyed with good and marketable title that is insurable by a reputable title insurance company at regular rates,......" Though Atty redacted argues otherwise, it is a fact that the affidavit is mandatory and any title insurance company who is aware that their authorized agent [attorney or not] is issuing a policy without having such an affidavit in hand, that title insurance company would refuse to issue such a policy."

Upon receipt of this explanation, the listing agent spoke with the seller and she agreed to sign the affidavit despite the recommendation from her attorney.

Do your closers carefully review the owner/seller affidavit when it is being signed?

This case, see attached link, which I found through the wonderful tool of Lexology - thank you Christopher Smarts, made me think about the importance of this affidavit review.

I wondered as I read the case whether Speisman read the affidavit and intentionally withheld the construction status from the title agent or did he do what many may do and that is to simply sign where indicated thus committing fraud without knowing he had done so.

I realize that from the title insurance company point of view, it doesn't really matter because he signed the affidavit and has a responsibility to read before signing. I do wonder, though, if the closer had looked him in the eyes and read the mechanics lien language, if the borrower would have told the closer about the construction. I think there is a good chance that he may have. It is hard to lie when someone is looking into your eyes and challenging you on a specific point.

We train our closers to look directly into the eyes of a consumer during certain points in the affidavit with the hope that doing so will make them reveal a problem if one exists.

In the case of Speisman, had he spilled the beans, the closing would have been cancelled and perhaps the loan officer might have been angry, but the title insurer would have been protected and in the long haul the borrower would have been protected from himself.

What do YOU think?

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.

What about those liens discovered after closing?

Hi Diane,

I short sold my house in July 2011 and it was found in the County Tax Bill that the City had a Lien on the property for past due sanitary charges. I was not aware of the charges or lien. Chicago Title was used by the buyer for title search and they did not find any liens on the title either. Now the Title Company has paid the lien in full but are requesting me (Seller) to pay them the lien amount or they will use Attorney and collection and I will incur additional charges. I was always been told that if there are any liens found after the Close of Escrow it is the responsibility of the Title Insurance Company. Are they allowed per Law in the State of California to recover any amounts they paid for failing to find the lien prior to close of escrow. Please let me know what is your recommendation.

Thanks,

Anonymous

Hi, Anon:

From the perspective of the buyer who purchased the insurance, yes, the liens discovered post closing would be the responsibility of the title insurance company, however this insurance does not extend to the seller.

Even if you were unaware of the lien, the responsibility still rests with the owner of the real estate.  If a foreclosure had taken place, depending on the laws of your state this lien may or may not have survived foreclosure.  In Pennsylvania, the mortgage lender who foreclosed would have had to pay it.

So, in the short sale, only the mortgage lien was released.  Any other liens, even if found after closing, stay attached to the real estate.  For this reason, title companies insist upon warranty deeds and affidavits.  In these documents you would have given a personal guaranty of title.  It is the warranties in the deed and other affidavits you signed at closing would be the basis for legal action against you.  If you did not sign any affidavits or give a warranty deed, you might have a defense.  In either case, you may wish to talk with an attorney.  Some times the size of the lien determines how much effort the title company wants to expend in collection.  Having an attorney at your side does present a more formidable challenge.  

Good luck and I wish you well.

Diane