Question on property taxes at closing

mainecoonkittySeptember 29, 2011

Our house finally sold after nearly a year on the market. The closing was Tuesday and we did very well, tripling what we orginally paid for the house over 20 yrs ago. But here's the question for those of you experienced with closings: Over the year the house was for sale, we paid off the original mortgage, not realizing that the lender had only escrowed and paid taxes through 2009, but not for 2010, since the mortgage was paid in full in January 2011 and we pay taxes in arrears here. After the mortgage was released by the lender, we got a huge refund back for our overpaid tax escrow account, but it didn't dawn on us until yesterday (the day after the closing), when we looked at the Auditor's website for the property that our 2010 taxes were still outstanding and unpaid. Now the settlement statement does reflect that 2011 taxes from Jan. 1 through Sept 27 were deducted from our check, but nothing for 2010, which is what I expected to see. Obviously, the title company whp prepared the paperwork and conducted the closing completely missed the 2010 taxes being outstanding and delinquent and I assume the deed cannot be transferred to the new owners until the taxes are paid. We have no problem doing the right thing and paying the 2010 taxes, but shouldn't the title company bear some responsibility for not catching this glaring error when they researched the property for liens and encumberances to the deed? They were paid to do a title search and they obviously missed a big thing that might cause a problem both for the buyers and for us.

We called our real estate agent last night when we discovered the problem and are waiting to hear back, but I'd like the opinions of those of you who are experienced in this kind of issue. BTW....initially, even our own agent was convinced that we were ok and that just deducting the 2011 taxes through the closing date was correct...UNTIL we made her look at the Auditor's website and see that our 2010 taxes were still outstanding. She was shocked that this was missed.

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You know what the right thing to do is, so just do it. Write a check and mail it in with return receipt requested, or go down to where ever you pay your taxes and take care of it in person. If you go in person, I expect you'll be treated as a hero for stepping up, unprompted.

Doesn't matter who missed it, and anyway if anyone has a beef it's not you as the title company is working in either the buyer's or morgage company's interest.

Even if you were tempted to let it slide I think eventually the State Auditor's office would find the error and you'd be on the hook for interest, and possibly penalties, on the unpaid tax debt. The fact that you no longer own the property wouldn't protect you.

Congratulation on selling your house, at a good profit, in this economy.


    Bookmark   September 29, 2011 at 11:13AM
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The auditor's website could be a little out of date. I wouldn't be too quick to start handing out money. But, yes, as a courtesy and because they probably have insurance against mistakes, the closing agent may pay some or all of anything due.

When we have closed in the past, we have usually been asked to sign a document that says we will allow and comply with corrections after the fact, fwiw.

    Bookmark   September 29, 2011 at 11:19AM
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We paid it this morning to the title company and probably saved the document preparer her job. She had completely missed it and marked it on the settlement forms as paid. The poor girl was sobbing when she thanked us. Both the buyer's agent and our own agent were astonished that we caught it and so many others, including them, completely missed it. A little while ago, the president of the title company called my husband to thank him. He's also sending us a check for our portion of the title search fee and a gift card to a really nice restaurant here in town for dinner on him. We're going to take the new owners out for dinner. All's well that ends well! :)

    Bookmark   September 29, 2011 at 2:54PM
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Doing the right thing pays. :-)

    Bookmark   September 29, 2011 at 3:05PM
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You're one of the good guys.

    Bookmark   September 29, 2011 at 11:23PM
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LOL! Thanks. We never considered not paying the taxes, but it does concern me that such a big thing got missed and no one caught it.

    Bookmark   September 30, 2011 at 10:57AM
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Something similar happened to us when we bought our cottage on the river in 2000. We bought it from a guy we knew, Joel, and there were no RE agents involved, but we did have a title search done. He had only owned it for a year and was moving out of state.

About 2 months after we bought it, we went to the cottage one weekend and found a notice on the door saying the property was being sold for back taxes! SAY WHAT?

Promptly on Monday morning my husband appeared at the title company's office and showed them the notice. They apologized profusely and paid the tax bill immediately.

The problem arose because Joel had to purchase both the house and the land, the house from the seller and the land from a utility company. It seems the title company had only searched the title to the land, not the property. Joel had no idea about this, either, because he had never gotten any tax bills. It seems they had been sent to the previous owner who had thrown them away. Whew! What a scare that was.

    Bookmark   October 1, 2011 at 6:53PM
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