I’m sure at some point in life, each of us has thrown up our hands and said, “I’m not worrying about the details, this is good enough.” Of course, when you deal with real property transactions, you quickly learn that the small stuff matters.
The claims team has seen several areas that can be typically resolved in the transaction or post-closing without ever rising to the level of a claim. Let’s look at three of those areas – Release of Liens, Release of Revolving Line of Credit / Home Equity Line of Credit, and Property Taxes – which all require attention to detail.
- Release of Liens
Let’s say you’ve obtained the payoff letter from the correctly identified and verified lienor, closed the transaction, sent the funds to the lienor, and now you are moving on to the transaction. But wait! The lien is recorded in the county land records, so how are others to know it has been paid? Several lienors will handle recording a release in the proper county land records, but there are few lienors who fail to do so. Either the lienor sends an unrecorded release to their borrower, to the title company, or does not prepare one at all. In a few states, there are statutes that provide a timeframe in which a lienor must record the release after receipt of payment. In other cases, the instrument may have a clause that discusses the obligation of the lienor when the debt is paid. In all cases, as part of a post-closing, best practice process, a release or satisfaction should be promptly filed in the property’s county land records before the file is classified as completed. This may require a few follow-up communications with the lienor to satisfy this requirement, but it will be worth it in the long run.
- Release of Revolving Line of Credit / Home Equity Line of Credit
The Revolving Line of Credit or Home Equity Line of Credit loans allow a borrower to draw funds, when needed, and the borrower can use the line of credit over and over while being secured with the property. Many closers may take the same steps as a typical payoff of a mortgage or deed of trust, but there are a few additional steps required to properly close down and have the loan released from the property. Just sending the payoff funds is not enough.
To properly address these types of loans, a written request from the borrower to close the account upon receipt of the full payoff is typically required. Many lenders request a signed letter from the borrower requesting to close the account. So, if you are wiring the funds, the seller’s written request to close the account will still need to be delivered to the lender. To provide evidence that the borrower’s written request was sent to the lender, a best practice would be to track the delivery of the request to the lender, either by facsimile, mail or email. Once you receive confirmation that it has been delivered and received, keep a copy of this information in the file along with a copy of the written request. Similar to the Release of Lien section above, a release or satisfaction should be properly filed in the property’s county land records before the file is classified as completed.
- Property Taxes
Whether you are using a tax company to provide a report on the outstanding property taxes or doing the research yourself, if not handled accurately, unpaid property taxes may result in a homeowner being subjected to additional taxes and penalties or losing the property. In a few states, just looking at the county’s tax collector site is not enough as there are other entities required to be paid that are situated outside of the tax collector’s office. If you are doing business in such a state, identify all the tax entities to which taxes are due and payable when a property is conveyed or refinanced.
Another tax example involves states that are reviewing prior owner exemptions. If an exemption was deemed to have expired in an earlier conveyance, the tax collector’s office is sending letters to the current homeowner seeking payment for the difference caused by the changed exemption for the prior years. As an example, if there is a homestead exemption reflected but a company has held title to the property for several years, this may require a discussion with the tax collector’s office as to the proper calculation of taxes owed if the exemption is no longer valid. With this information, the proper amount of taxes can be collected at closing.
Our final tax example involves prior year’s unpaid taxes or issued tax certificates. In these cases, make certain the proper payment amount is collected and timely delivered to stop a tax lien sale or, if sold, any certificate holder from obtaining a tax deed. Depending on the state, the expiration of the redemption period after a tax deed is issued may result in a loss. As a best practice, the title company should confirm with the tax collector’s office or its designated entity that it has received payment and that the payment is being applied to the correct account(s).
Attending to the details in these three areas will provide assurance to all those involved in the transaction. Having properly addressed these matters, a seller or buyer will not have to worry about being contacted in a few months, or possibly years from now, to address these issues. If you have questions, please contact the Alliant National claims team.