R's tax proration discussion continued

Hello Diane

Thanks for the info.  I looked at the sales contract from this past summer...here's what I found about prorated taxes:

"PRORATIONS: Taxes for the current year, maintenance fees, assessments, dues and rents will be prorated through the closing date (Jun 26, 2012).  The tax proration may be calculated taking into consideration any change in exemptions that will effect the current year's taxes.  If taxes for the current year vary from the amount prorated at closing, the parties shall adjust the prorations when tax statements for the current year are available (in this case they were available Oct 1).  If taxes are not paid at or prior to closing, Buyer will be obligated to pay taxes for the current year."

So in this case, taxes were not paid at or prior to closing.  But I didn't take ownership of the property until Jun 26, yet I could still be liable for taxes owed during a period when I didn't even own the property?  My other frustration is that this stipulation in the contract is buried in the fine print...and if I don't happen to find this phrase on closing day, I'm stuck with all taxes?  I'm no expert on closing contracts.  If I was, why would I pay the closing agent to do anything?  I guess my other question...who should have made me aware of this?  My realtor/agent, the title company representative, or the building/owner?

And knowing this verbiage from the contract now, how would you proceed?

Thanks

R

Hi, R:  This is not unusual.  We all as consumers sometimes ignore the boilerplate in contracts but that doesn't mean that those words have no meaning.  As a buyer you are on your own unless you hire an attorney specifically representing you or you have a true buyer's agent.  The title agent, even if they are an attorney, is not acting the capacity of buyer counsel.  In fact, typically the sales contract is already negotiated before the title agent enters the transaction.  Buyers need to read their sales contracts and if they aren't sure, they need to hire an attorney to advise them.

You might still at least contact the title agent by email or phone to ask them how or why they calculated the prorations.  See if their explanation makes sense now that you have read that portion of the sales contract. If they clearly demonstrate that they were following the instructions contained in the contract, you have your answer. 

You might also want to talk with your real estate agent to see how they interpret this language in the sales contract.  Perhaps the agent can shed light on local custom or may even agree with you that there was an error.

I hope this information is helpful and I thank you for sharing your experience as I am posting it on the blog because I think it will help other home purchasers.

D

active duty military family gets into a mortgage payoff horror

hello, i came across your website and yours is the only one that came close to what i'm dealing with. my situation seems really bizarre and i'm hoping you can help. ANY advice you can give me is greatly appreciated because i have a court date in a few weeks and i have to appear alone because my husband is deployed in afghanistan. i'm scared to death to go to court over this! here's the story:

we owned a secondary home that my father lived in (not as a rental). the neighbor approached me last summer and wanted to buy it so after careful consideration, i decided to sell it to him. my husband was deployed then as well, so i did everything with a POA. this is a very small town in West Virginia, and i am friends with both the buyer and the broker. the broker called me to tell me when the closing was and when i asked what i needed to bring to the closing other than the POA, she said (and i quote), "nothing but your pretty face, we take care of everything".

so that's what i did. i brought the POA and showed up to the closing, signed all the paperwork, and they handed me a check. when i looked at the check, i noticed it had a clerical error. i showed them the error and they cut another check. i turned over the keys to the house and went back home (to my primary residence a couple of hours away).

flash forward three weeks later, my husband returns from afghanistan. he is looking over the paperwork and says to me, "they paid off the wrong house, w. they paid off THIS house, not the other house". he shows me the HUD-1 settlement paperwork that we all signed and sure enough, it shows the physical address of my primary home as well as the payoff amount for my primary home. both mortgages were held by [lender redacted] and evidently when the broker called for the payoff amount, she was either given the wrong one by [lender redacted] or something, i'm not sure. but either way it happened. so my husband calls her, tells her what she did, and she said, "oh my god you're right. i'll have to look into this and call you back".

she called him back a few days later but he was gone again - deployed in the US for three weeks with no access to his cell or personal email. she sent him several emails and when he never responded she emailed me and said "we paid off the wrong house and as a result, you were overpaid by $8k at the closing. i reversed the payoff on your primary home but am holding the money in a non-interest bearing account until you pay back the money you were overpaid. when we receive it, we will pay off the mortgage on the home you sold".

now mind you almost a month has gone by. there is no more money. i had $4k in my checking account so i drove 2 hours back there, gave her a check for $4k and wrote a post-dated check for the remaining. i said, "i need to figure out how this happened, it just doesn't seem right". she said she was sorry about the mix up but stressed how important it was for me to pay back the remaining balance sooner than the date on the post-dated check. she said that with each passing day the situation was getting worse. i explained that i used the money to pay my daughter's tuition and to buy her a car - that was the only reason i sold the house in the first place! she said again that i REALLY needed to hurry up and pay the balance to her so she could straighten it out. 

i went home and started telling some people about this and they all said, "do not let her cash that second check!". the more i thought about it the more mad i became. i know people make mistakes but this was huge. to make matters worse, since she reversed the payoff on the wrong house but didn't apply it to the house i sold, i was still responsible for both mortgages! i had automatic payments set up for both so both were taken out in june and in july. so now i sold i house in june but have made two payments on it. AND the new owners were making payments on it!

i emailed her and told her not to cash the second check and that i needed her to contact [lender redacted] and get the two payments back that i made on the house i "sold". i did not hear back from her and another month rolled around and with it another mortgage payment. i finally wrote an email to her and the bank she represents, as well as the law firm that handled the closing. i explained the situation and again told them to get the THREE mortgage payments that i had made on a house i sold three months prior and i would be glad to pay them any monies still owed. at that point i received a reply from the bank's attorney that basically said i was scamming the bank and refusing to pay back money that didn't belong to me. i was furious.

i called [lender redacted] myself and explained what was going on. they said they had never heard of anything like this before and they were astonished that the bank, the broker, AND the attorney handling the closing could make such a huge mistake. that said, i was told by [lender redacted] that i was still legally responsible for the mortgage and there was nothing they could do. and then another month rolled around and i made yet ANOTHER mortgage payment on a home i sold (five months prior).

i finally got sick of it and called [lender redacted] back and stopped the automatic mortgage payments. the following month i received a notice of late payment and the month after that i received a certified letter stating i was now two months behind and foreclosure procedures would begin and that my credit was being ruined. i thought, "oh well, i hope it DOES go to foreclosure court and the new owners are kicked out of their home! then they can sue!"

fortunately it didn't come to that and i received a payoff notice from [lender redacted] in january 2012...7 months after i sold the property and over $4k in mortgage payments, not to mention homeowners' insurance and property taxes. i just was thankful it was over.

but it wasn't.

i was served with a civil complaint and am being sued for unjust enrichment in the amount of $3840. i don't even know how that amount was calculated. in fact, the complaint says "approximately $3840". it goes on to say that the defendant "should have known the amount she received was more than she was entitled to" and says "the defendant refuses to pay the money back and spent money that didn't belong to her". 

i cannot believe the audacity! so now i have to appear in court by myself as i cannot afford a lawyer to represent me. i filed an answer and counterclaim seeking the mortgage payments back, but i don't know if i have a chance in court because i'm going up against a law firm and a bank in magistrate court in a small town where they all know each other.

any advice? i'm nervous as hell :(

thanks so much,

w

Wow, W.  Thank you for contacting me and I hope I can help.  First, please contact the Consumer Finance ProtectionBureau.  This is the new federal department and they have a special section that helps veterans and families with active duty service personnel.  I'm not certain if they can help, but again, since they have taken on a special task of protecting the military, they may.

Here's what's bothering me about what you have told me.  

1.  The buyer purchased the property using the services of an attorney and got title insurance.  Whoever was writing the title insurance and performing the closing was responsible for the accuracy of the mortgage payoff.  I'm appalled that they allowed the real estate agent to obtain your mortgage payoff letter.  I am also appalled that the attorney or title agent did not check the payoff letter to make certain it was for the correct property.  This is a normal security step and part of a competent title examination/insurance routine.  In my opinion, the lack of pre-closing review of the mortgage payoff letter was negligence.

2.  [lender redacted] should not have given a payoff letter to anyone who did not have your permission.  Did you sign a document giving your real estate agent permission to get the payoff letter?  Take a look at it and see if it has the property address on it.  Just because you had two mortgages with [lender redacted] and gave a person authorization to obtain private information for ONE account does not mean that you gave permission to access another account.  When mortgage payoff letters are requested, this is typically done by fax or phone.  The party ordering the payoff letter usually has to have the account number and the last four numbers of your social security number.  Did you provide this information to the real estate agent?  If you gave them the wrong account number, that still doesn't mean the attorney shouldn't have checked it but it does help explain how the problem started.

3.  Title insurance companies are trained to deal with these types of problems.  Real estate agents are not. I am horrified that the real estate agent was the one who reversed the mortgage payoff and held the money in escrow, refusing to release it to [lender redacted] as payment on the correct mortgage.  What should have happened is that the money - even though not enough for a payoff - should have been immediately directed towards the correct mortgage as well as the $4000 you returned from the proceeds.  Then, if you were unable to return the other proceeds, the title insurance company would have advanced the balance to protect their client, the person who bought the house.  You should not have made any payments on the mortgage for the house you sold.  When the dust settled you would still owe back the additional money but it would have been a lower amount as you wouldn't have advanced the other payments plus additional interest and fees would not have accrued on the [lender redacted] payoff.  Whoever orchestrated the methodology of correcting the error of not checking the mortgage payoff did a terrible job and created a much more expensive solution.  I would try to find out who made the decision to hold your money in escrow and not forward it to [lender redacted].  They had no business holding your money while interest was accruing on your mortgage.

There is no doubt that you owe money back into the transaction is you were unjustly enriched by the payoff letter error, however, I do think you need to carefully calculate how much that would have been if they had done it correctly on the day of closing versus what they are asking for now and how much extra you paid in the meantime with the additional interest and fees accruing plus extra monies you may have paid in additional mortgage payments.  It is possible that the extras that accrued because of the combined negligence of the parties would offset your unjust enrichment.  You appear to have suffered financial damages due to their negligence and that's got to be a part of determining the bottom line of what you owe, if anything.

I also suggest that you try to get an attorney.  See if a support group for military families can make a suggestion or perhaps CFPB can help there.

You may also want to contact the state real estate commission, department of insurance, state bar association, and state banking department and file complaints about the inappropriate and negligent services provided by the real estate agent, attorney, title insurance agent/company, and perhaps [lender redacted].  I am not certain whether [lender redacted] made any errors but certainly once the error was discovered they could have done a better job of suggesting ways to resolve it.

This is a terrible story of incompetence by a real estate agent and a closing attorney/title insurance agent.  I hope it works out for you.  Good luck.

Diane.