How Does Title Insurance Apply to You?
Many of you may have been introduced to title insurance as a result of real estate transactions in which you have participated. Title insurance is important because it provides protection against financial loss which could result from defects in the title to real property, or from errors made in searching that title. For example, when you purchase a piece of property, you can also purchase an Owner’s Title Policy which protects you from financial loss caused by circumstances which adversely affect or restrict the title to your property. In addition, the Owner’s Title Policy covers all legal expenses incurred in defending a claim against your title, even if that claim has no merit.
Some may wonder what types of issues are covered under an Owner’s Policy. Connecticut Attorneys Title Insurance Company (“CATIC”) deals with a variety of claims against Owner’s Policies. For instance, several of the towns in Connecticut have begun to utilize third-party tax collection services – for example, Plymouth Park Tax Servicing or American Tax Funding – in order to collect municipal taxes on real estate. CATIC has encountered several title claims as a result of these types of assignments.
The following scenario is a real claim we are processing: CATIC was recently contacted by a homeowner (our Owner Insured) who had been notified that there were delinquent taxes owed to American Tax Funding for a period of time prior to the homeowner’s purchase. After review of the title report and the tax bill used at closing, it was unclear how these delinquent taxes were missed. The actual tax bill indicated that the taxes were paid current. What CATIC discovered is that the tax collector had assigned the delinquent taxes to a third-party tax collection service and the debt was still owed. If the tax is still owed, why does the current tax bill issued by the tax collector’s office indicate that the tax is paid? The answer is, once the third-party tax collector purchases the delinquent taxes and the town has been paid for those taxes, the town marks the account as paid as it no longer has an interest in the recorded tax lien.
The problem being encountered is that they rely on the actual tax bill which does not reflect the assignment of the prior tax lien(s) to a third-party tax collection service. So how do we combat this silent title killer? As a part of the closing process, your attorney may do the following: 1) Check the Land Records. Any assignment to a third-party tax service should be investigated and the service should be contacted to make sure any assigned debt is paid. 2) Ask the Tax Collector. The attorney will ask if there were any prior delinquencies on the account and if so, if there was an assignment of any prior lien or delinquency. Since most tax bills do not indicate whether a prior delinquency has been assigned, it is always better to be safe than sorry! 3) Verify On-line Data.
The ability to check the status of taxes online is very convenient. However, it is also very important to confirm with the municipality whether or not any prior delinquency was assigned to a third-party tax collection service. Even with all due diligence, matters that adversely affect title can occur, which is why it is important to buy title insurance.
If you have any questions on the availability of title insurance for your next real estate transaction, please contact Kane, Hartley & Kane in Glastonbury, Connecticut.
Megan MacDonald, CATIC® Claims Counsel