advice needed - Title issue

28 Replies

Hi,

I need some help trying to figure out what to do. I sold a property on May 30th and am holding a first mortgage for the buyer. The buyers attorney did a Title search at the local town offices on May 9th and was told that no back taxes were owed which was true at the time. On May 15th the taxes were actually due for this quarter.  The attorney went back to the town hall the day before closing to make sure the title was clear but forgot to research and ask about the taxes. We had the closing on the 30th.

Being the prior owner I received a delinquent tax notice on May 31st. I called my closing attorney and he said that the taxes "run with the property" and that is no longer my issue and that the closing attorney for the buyer should have picked that up during his search. The buyers closing attorney is trying to convince my attorney that I owe the taxes. As the lender I was issued a lender title insurance policy but I am not sure if the buyer got one too.

So morally I actually do owe the taxes but legally it seems that my buyer ( because of his attorneys mistake) now will soon have a tax lien on the property. I should also mention that I paid $1,000 towards my buyers attorneys fees and in addition he charged my buyer $850 for a grand total of $1850 in closing fees...so I am pissed off  that he took advantage. My attorney drew up the note and mortgage and closed the sale for $750.   

So what should I do from here ? The buyers attorney says I should pay and is blaming the town hall. Do I have my buyer file a title insurance claim ( if he has it ) or should I ? Do I just suck it up and pay and be even more pissed off ? What if I was Wells Fargo or some big bank...what would they do ? My lawyer seems to now be leaning towards having me pay or file a claim but it is as if he is trying to protect the other lawyer.

Whew...I know this is a lot but any help would be appreciated. I am conflicted by what seems to be the ethical thing to do and what is legally in my right. In many ways I'd like the buyers closing lawyer to make good on this. It's his fault. So where am I off here....? Brutal honesty I can handle so please don't hold back.

Thanks

Bruce

The simple answer is: you advghe seller are responsible for the prorated taxes up until the day you sold it and the buyer is responsible for taxes after he owned it.

We don’t know if your taxes are paid in Advance or in Arrears. It’s just a simple math problem as to who owes what.

If the May 15th bill was paying taxes in Advance, for 3 months and you owned the property for a half month after that, then would owe 1/6th of that bill.

If the My 15th bill was paying taxes in Arrears, obviously you would owe it all plus 1/6th of the next quarter bill.

Whoever the closing attorney was had obligation to figure this out and go the proper pro rations on the closing statement.

BTW, you and the buyer both have an obligation to pay the Proper amounts in the event of an error/oversight on the closing statement like this.

ok.....so my buyers closing attorney did not figure this out as he didn't even know the bill existed......the may 15th tax bill covered March , April , May and June...so part is in arrears and part in advance

Well, attorneys sometimes act like prostitutes.....they assume whatever the client wants. Basic purchase contracts have you owing for the time you owned it.
You owe thru the closing date. Same as if you paid 4 months of property taxes which included 2 months after your closing....you'd want half back, and be entitled to it, even if Your attorney "missed it".

Certainly it was sloppy for the closing attorney to miss it, there is Always a proration of property taxes in one direction or the other, unless you just happen to close on the day of a new tax cycle.
BTW, quarterly payments wouldn’t be for four months.

My lawyer says this - " The bottom line is that he missed a lien during a title search and now his buyer is stuck with the bill"

@Bruce M. get a new attorney. I am not an attorney and I could blow multiple holes through that augment. While the most sever consequences wold happen to the buyer - he loses his house, You are still legally responsible. Wayne is right, the money is due based on the terms of the contract.  My guess is you signed a warranty or special warranty deed which could also make you responsible.  The comment above is doubly stupid because if it doesn't get paid your mortgage can be wiped out.

First it is important to understand title insurance should cover this for those insured. However that does not mean Bruce is not still responsible. The title insurance company can come after you. 

So what would I do? I would pay the amount I owe up to the day of settlement..

You likely signed a document at closing that says if you owe any more money that was missed you are still liable and will make appropriate payment to appropriate individual or entity. Its a standard document everyone signs.

@Bruce M. if you have purchased a title insurance then it should cover it since title insurance provides you the protection from anything that may have happened before.  Also call up the BBB and file a complaint about buyer attorney and that should do it.  On that note, at the end taxes need to be paid and given its your property 

@wayne brooks - my bad...you are correct ....the taxes are paid 3 times per year

Thanks to all so far. This is really fascinating stuff to me.  I want everyone to keep in mind that I understand that I owe the money and morally and ethically I'm ok with that.  What would really make my day is to hear the buyers attorney just apologize and admit to the error instead of having ego get in the way.  I'd also like to know how he spent $1850 to do a closing and make mistakes while doing it.  I have no plan to be the "bad" guy here.

Let's continue this from the legal standpoint.  @ Russell Brazil - no such document was signed and in the contract ( Standard realtor PURCHASE agreement section 19 - this is the legally binding contract that was used to purchase ) it gives seller the right to examine the title and notify the buyer if there are any problems so they can cure the default  before the closing date. It says nothing about errors or omissions. 

@ Ned Carey - Warranty  deed  seems very ambiguous in one section it says this " By Acceptance  of this deed, Grantees represent that they have caused the subject property to be fully inspected, and Grantees agree to purchase the same in "as is" condition. It is being fully understood that except as specifically set forth herein, Grantor has made no warranties, express or implied pertaining to said property, the condition thereof including but not limited to, matters relating to environmental conditions or hazards on the property"

Then later on its says " We are the sole owners of the premises and have good right and title to convey the same in manner aforesaid, and that they are free from every encumbrance, except as aforesaid and WE hereby Warrant and Defend the same against all lawful claims....."

nowhere in the deed do they define the "aforesaid" or "set forth herein" conditions.....so it seems to be saying two different things.....I'm passing this along only for the sake of discussion 

I really appreciate all who have taken and are taking the time to follow and contribute to this discussion.  So If I was a big bank then I would assume they would file a title insurance claim and then the title company would come after me as mentioned by a few of you.

Bruce 

Its not something you sign in the contract, its signed at closing. Ive been involved in hundreds of closings and this document is always signed.

@Tom Gimer can verify.....I believe one of the conditions for title insurance to buyer is that property taxes have been paid/credited at sale and believe property taxes are an exception not covered.

I'm certainly not doubting you Russell. All I am saying is that here in Vermont and at my closing no such document was signed. Perhaps that is why my lawyer can make the comments that he makes.  How many closings have you done here in VT ?

yeah, Title companies differ and what are considered "standard" exclusions differ also as per the company. Here is Vermont the lawyers do the title search then report to the title company that does the insuring. So the title company relies on the lawyer doing their job correctly. It was done like like that too down in Connecticut when I was a realtor there. No form that you mention in that sate back 25 years ago when I was in the business but perhaps they have adopted that form to correct errors in closings now. Sometimes I feel VT  is a bit behind the times or they just enjoy doing things their own way up here. Thanks for your input. It's very interesting and wouldn't it be great to have some standard way of conducting business.

Thanks @Wayne Brooks  ... I'll give my $0.02.

In a lenders policy (which is I believe what we are discussing here), unpaid real estate taxes would be covered.

However, this claim would probably be excluded under the exception for losses created, assumed or agreed to by the insured claimant -- because OP is refusing to pay a bill he is responsible for. And even if the claim were paid, the loss ultimately falls on the responsible party like so: the title insurer tells the closing attorney "you screwed up" ... closing attorney's E&O covers the claim ... then they turn around and collect from the seller/lender because the contract says taxes will be paid and prorated as of the settlement date.

Of course, I'm no VT attorney and this isn't legal advice. Report back on how this unfolds!

I want everyone to keep in mind that I understand that I owe the money and morally and ethically I'm ok with that. What would really make my day is to hear the buyers attorney just apologize and admit to the error instead of having ego get in the way.

@Bruce M. I wouldn't hold my breath for an apology.  Everyone makes mistakes. Of course a sign of character is how they handle those  mistakes. If you expect the attorney to apologize then you are giving him power over your emotions. 

Some battles in life are important some are not. This one is just not worth fighting. If you let something like this get under your skin, it will undermine other things of higher priority. Learn what you can from this and move on.

@Bruce M. What would Wells Faro do? WWWFD? Probably pay the tax bill and raise the escrow amount in the mortgage payment next year to reimburse themselves. If you did not sign any agreement to rectify any closing errors and in Vermont the title attorney is responsible to verify clear title...hell, everyone knows how to check to see if taxes are current...I would be inclined to pay the taxes “as lender” to preserve the property just like WF will do for insurance if you do not set up a policy, flood insurance in a flood zone if not paid, and property taxes if not paid (that is why they escrow...to preserve the collateral). There is a letter they send out saying insure this date or they will set it up. Send a tax one and let the buyer duke it out with the attorney he hired for $1800...unless the $1800 was for the title policy. I feel your indignation having paid 1k to someone for a couple hours work that they screwed up. I totally would feel due for at least a partial refund. You can bet the tile guy who didnt get the border quite straight on the attorneys backsplash either ripped it out and redid it or didn’t get paid. Just IMO.
@Tom Gimer Probably shouldn’t have put in my 2 cents because I have no experience. But really, What would have happened had the seller not carried the note? Would the buyer ask him nicely to pay the taxes now discovered due on a done deal that he signed, recorded and walked away? He would ask the lawyer what happened, and rightly so.

this is still ongoing but I didn't forget and will keep the thread updated . Currently the buyers closing attorney is not returning calls and the buyer isn't too happy about the mix up. Both of us ( the buyer and the seller ) are not happy at being charged $1800 for that closing so my buyer is on my side of that part of this problem. I have requested an itemized bill of services and so has my buyer. None has been delivered so far. It's funny, many  just pay what a lawyer puts down as their fee and never question it.  Well, I'm not one of them and want to know what I'm being charged for.  Unfortunately the Hud was not ready for review the night before the closing and I messed up by not checking it over very well at the closing table. The days of putting lawyers and doctors up on pedestals should be long over but society still throws them up there. That's for another discussion though. Thanks for all the great comments here. 

Originally posted by @Bruce M. :

this is still ongoing but I didn't forget and will keep the thread updated . Currently the buyers closing attorney is not returning calls and the buyer isn't too happy about the mix up. Both of us ( the buyer and the seller ) are not happy at being charged $1800 for that closing so my buyer is on my side of that part of this problem. I have requested an itemized bill of services and so has my buyer. None has been delivered so far. It's funny, many  just pay what a lawyer puts down as their fee and never question it.  Well, I'm not one of them and want to know what I'm being charged for.  Unfortunately the Hud was not ready for review the night before the closing and I messed up by not checking it over very well at the closing table. The days of putting lawyers and doctors up on pedestals should be long over but society still throws them up there. That's for another discussion though. Thanks for all the great comments here. 

 Doesn't the CD (Closing disclosure) has to go out 3 days before the closing?  I believe the rules changed Oct of 2015 for that. 

Originally posted by @Bruce M. :

It seems Vt is in it's own little world

I believe this is a CFPB requirement, which is a federal department created under Obama. Why would there be exemption for Vermont. Probably not a requirement if its not a government backed mortgage.  Maybe that's why...

TRID only applies to consumer loans ... if this was an investment property purchase (business loan) or a cash deal then a CD would not be used and the disclosure rules would not apply. I assume that since a HUD/ALTA was used that is the case here.

Originally posted by @Marian Smith :
@Tom Gimer Probably shouldn’t have put in my 2 cents because I have no experience. But really, What would have happened had the seller not carried the note? Would the buyer ask him nicely to pay the taxes now discovered due on a done deal that he signed, recorded and walked away? He would ask the lawyer what happened, and rightly so.

The liability ultimately falls on the responsible party. Buyer would blame title company/attorney... title company/attorney would collect from the seller (perhaps after paying the bill in question).