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

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

title claim tip....

If you are selling your property and your buyer's title insurance agent says there is a pre-existing lien that you need to pay and they want you to just pay for it then file a title insurance claim later, DON'T DO IT. Sometimes the buyer's title insurance agent is wrong.

The first job of a title insurance company when faced with a possible lien is to determine if the lien is valid.  If the lien is valid and it's covered by your title insurance, then they will pay it for you.  If, however, the title insurance company determines that the lien is not valid, they will explain this to the buyer's title insurance agent and help you to proceed with your transaction and close.

If you simply agree to pay for the lien and expect to recover from your title insurance and it is determined that the lien was not valid, you won't recover your funds.

We most often see this in PA with municipal services.  There is a 3 year window for filing municipal liens for things like water and sewage service.  If the municipal authority fails to file a lien in that 3 year window, they can't attach the unpaid balance to the property.  Just because they ask for the money on a lien letter doesn't mean that it must be paid.  A simple discussion with their solicitor usually resolves the matter.

We have a pending claim in our office concerning PA inheritance taxes.  In this case an attorney/title insurance agent who was representing both buyer and seller in a transaction found what he thought was a valid lien, paid it from the seller proceeds and then told the seller [our insured] after closing to recover the funds under their policy.  The claim isn't formally resolved but from the moment it hit our office and we sent it to the claims department, at every level each person who reviews it, says it isn't a valid lien and they don't understand why the attorney paid it.  He could have held the funds in escrow while his sellers filed a claim.

So, don't let the money out of the door before talking with your title insurer.

Working with an elderly seller whose attorney is semi-retired and a nice fellow....

who just won't let us do our job.  This transaction made me realize just how hard it might be for me one day to continue to do business when the methods morph beyond my ability or willingness to comply.

While the buyer, lender, and real estate agents were all wanting to move forward, we had to adjust the workflow to the timing of another era.

It wasn't unpleasant and certainly not laziness or procrastination.  These fellows worked at the polite speed of days gone by.

In addition, when we found a problem - an unsatisfied line of credit with a bank no longer in business - the seller's attorney would not give us the information we could have used to resolve the matter in a few days.  He decided to handle it himself and visit the bank that he thought had taken over the branch files.  They couldn't help him at the branch level and so when time ran out, our options were to postpone closing or set up an escrow and let him work it out post closing. He opted for an escrow and so closed.

The whole experience made me think of my bosses and mentors of days gone by.  It also made me think about how well I will deal with the changing nature of business as time marches on.

query via e-mail on the subject of PA inheritance tax escrows

Hello Diane,

I'm from out of state and I've gone through multiple home purchases, sales and refis, but I have NEVER come across this before. I was wondering if you could shed some light on this topic of escrowing for PA inheritance tax.

My Mom passed away several months ago. She had no significant assets other than a modest home which was worth less than $250,000. I am going to settlement shortly and was just advised by the settlement agent that 4.5%
of the home's gross selling price (not the net proceeds) would have to be withheld/escrowed for Pennsylvania Inheritance Tax.

I have calculate that my Mom's estate will owe less than $4,000 in PA. inheritance tax, but the title company will be escrowing almost $10,000! The title company said that they will release the balance of the funds after the
Dept. of Revenue in Harrisburg provides me with a Notice of Appraisement saying the inheritance taxes have been satisfactorily paid -- in about 3 months!

The title company is claiming that all title companies are doing this now. They have been left with unpaid inheritance taxes in the past, which is why they require this of all estates, regardless of the size.

I think this is simply outrageous and was wondering what is your experience with this? The title company also said they would NOT accept a receipt even if I paid the inheritance tax at the County courthouse before settlement!

Thank you in advance

Sincerely,

Steve from VA

Hi, Steve:

It's an issue we have to deal with and we have all been burned. I handle it in a few different ways. Whether or not the buyer's title agent will be more flexible, I can't tell you.

First, let me explain the title risk so you understand that it is real. Inheritance tax on the entire estate - not just the amount owing for this real estate - remains as an unfiled lien against the real estate for a bit over 20 years.

The PA Dept. of Revenue can file a lien against any real estate owned in the Commonwealth during that period IF there is any outstanding inheritance taxes owed, period.

What you CAN do if you want to move quickly and aren't ready to file the full inheritance tax return is ask the PA Dept. of Revenue for a release for this property.

If you are able to file the inheritance tax return now, I would get it to the Register of Wills with payment for any taxes owed. Offer to have the attorney for the estate provide a personal guaranty to cover any problems with the calculations or give a personal guarantee yourself.

Frankly, we do take the personal guarantee letters from the attorneys if we feel comfortable, however, a title agent is not required to take these letters. Their underwriter may prohibit the practice. Underwriters have various opinions on the risk of the letters.

In cases where we do escrow, we escrow 6% of the gross sale price so this title agent is a bit more lenient than we are. Remember that it's more than simply the tax that might be owed on this property that could force a lien.

If you are unable to work out any other solution and have to escrow, ask that they place the money in an interest bearing account. They are required to do so at your request. Also, the state requires that the escrow agreement be in writing and that the title agent charge a $25 fee to set-up the escrow. Read the agreement carefully with your attorney. Ours is irrevocable.

I hope this helps. FYI - Every year I have to send escrow money to the Dept. of Revenue because people abandon it. It's amazing. ;) Good luck and thanks for the question.

Diane

Anybody else with suggestions for Steve?