Paying Taxes: Double Check Before Writing The Check — North American Title Insurance Company

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Researching tax assessment data, determining the correct amount of any current or delinquent taxes due, and confirming the payment of ad valorem and other taxes on property involved in a sale or refinance transaction is an integral part of the closing process. How to obtain this information reliably and expeditiously from the taxing authorities often can be a challenge, but must be undertaken with care and patience. Calculating and pro-rating the proper amount of taxes payable by the seller and the buyer is equally crucial. Either way, simple mistakes in calculating or failing to pay the proper amount of taxes at closing can expose the new owner to threatened foreclosure and loss of title.

A common cause of a failure to pay or cure taxes at closing is a change in the parcel identification number or “PIN” of the property being transferred. Often, this occurs with new subdivision development or lands intended to become a part of the common area, but remain assessed in the name of the prior owner. The developer may seek to retire the original PIN on undeveloped land and assign individual PINs to lots on the developed land. Other times, the developer will leave the original PIN in place, and have a new PIN issued for the developed portion of the original parcel. Usually (but not always), the subdivision is contingent upon taxes being paid current at the time of subdividing.

In a perfect world, a new PIN would not be assigned by the taxing authorities until the existing PIN (containing at least a portion of the property) is retired or split completely from the new PIN. If that were the case, the title agent could, with confidence, rely on the existence of a single PIN for the property and limit the research to that PIN. In reality, often an old PIN may be canceled even if there are outstanding taxes due on the PIN. Those taxes eventually will proceed to a certificate and/or foreclosure sale, but the delinquent and sale notices may not be addressed or mailed to the individual lot owners with new PINs due to local law or practices. In some jurisdictions, years may pass before the tax sale purchaser asserts an ownership interest, usually through contacting all affected lot owners, and demands a portion of the underlying land or payment of the outstanding debt, along with considerable interest. In other jurisdictions, by the time the lot owner learns of the tax sale, title may have transferred to remote third parties, with the owner’s rights of redemption lost forever.

In order to mitigate this potential risk, a prudent agent will want to request a PIN history for the property being sold or encumbered. If the plat (or other obvious title evidence) and PIN history do not coincide, further investigation may be warranted. The Tax Office will, most likely, be able to provide a history of the other PINs from which the parcel was derived. Another option is to perform a search and examination of all PINs that appear in the title documents in the chain of title, such as prior deeds, mortgages, affidavits or agreements. While this may seem cumbersome at first blush, the time spent in the research will more than offset the loss that can result, to the detriment and distress of the owner, if a thorough search is forsaken.

Another common source of risk involves a discrepancy between the online tax data and the data available on the internal tax office system. While online research may be the preferred, and more convenient, method, the information referenced on the online portal (if not connected directly to the Tax Office data) often will be delayed, inaccurate, incomplete or obsolete. In fact, the online site usually contains an express disclaimer of accuracy and reliability of the information presented therein. Although the Tax Office may have originated and disseminated incomplete or outdated tax information, once the mistake is discovered, the Tax Office (as required by law in most states) will pursue collection of the taxes. In one example, the online portal provided a copy of what was described as the actual tax bill; however, the paper copy arrived with a different amount due after the Tax Office later added an amount due from a previous tax sale which was not referenced online. In another example, the online portal described, under the “Total Amount Due”, a specific amount with an asterisk (*) placed several lines underneath the number without further explanation. The Tax Office later relied on the asterisk to demand payment of several thousand dollars in taxes which had been deferred, claiming the online portal was an unofficial method for confirming the amount due.

Claims due to a discrepancy between tax information presented online and through the Tax Office are numerous, expensive, and often avoidable. In 2012, multiple closings in Palm Beach, Florida were affected when additional taxes were presented after closing. The resulting claims cost title companies and insurers close to $100,000. As a result, the Tax Office altered the way in which information is now presented to closing professionals ( Numerous lawsuits have ensued over the information obtained from or presented by the Tax Office prior to closing. See Booneville Collision Repair, Inc. v. City of Booneville, 2014 Miss. LEXIS 582 (Miss. Dec. 4, 2014); Petak v. City of Paterson (Super.Ct.App.Div. 1996) 291 N.J.Super. 234 [677 A.2d 244].

It is vital to obtain written confirmation (if possible) from the Tax Office when obtaining any information over the web (or in person). A fax confirmation request/return or email may suffice. Sometimes, a representative at the Tax Office will sign the presented tax bill with a confirmation notation. Even in states which issue or record Certificates or other documents in connection with taxes, a record of the closer’s efforts undertaken to determine and calculate the tax information can be key in the event of a challenge against the Tax Collector or the third party purchaser. An agent’s written notes memorializing the process by which taxes for the property were identified and calculated, and confirmed by the Tax Office prior to closing is powerful evidence, difficult for the Tax Office to overcome. Even so, the Tax Office in some jurisdictions will not unilaterally reverse or extinguish the imposition of taxes, interest and penalties, or even a tax sale to a third party, despite its own error without a court order that the owner is forced to obtain at the expense of the underwriter or agent.

On the other hand, reliance on verbal confirmations from Tax Office personnel is risky, for the Tax Office personnel changes often and there may be no record of the discussion in the Tax Office computer tracking system. As compared to in-person interactions, verbal exchanges can lead to miscommunications and misunderstandings. In one case, although the Tax Office verbally confirmed the amount of taxes due and payable, a prior tax incentive had not yet been applied to the tax bill on the date of the conversation. After the closing, the Tax Office increased the tax amount due (as of the closing date) by several thousand dollars, resulting in a claim by the owner against the agent and the underwriter.

Your local Tax Office may have published rules or guidelines for obtaining tax information. To minimize risk, these rules should be followed without deviation. In addition, state statutes that regulate the assessment and collection of taxes must be considered in conjunction with these local rules or ordinances. Those who memorialize the efforts undertaken with the Tax Office to identify and calculate the tax amount, and preserve the information obtained during the tax search process are in the best position to advocate, to the owner’s benefit, for a reduction or elimination of taxes, interest and penalties imposed post-closing. In many states, when presented with documentary and reliable evidence that establishes an error on the part of the Tax Office, a refund may be available through an appeal process, or a tax sale reversed by court order. Check with Company Underwriting Counsel for assistance concerning compliance with local standards and practices to ensure the accuracy of tax information that will allow you to close your transaction with confidence.

Article provided by: North American Title Insurance Company

Claims Connection (2015-001) is provided by your North American Title Group Legal Department as a general information service and is not intended to contain comprehensive discussions or be relied upon as conclusive. Please contact Margery Q. Lee, Esq., Manager of National Claims and Litigation (925.295.0519) with any questions or requests for assistance.