Expert: Jay Denit - 8/23/2007

Question
Hello Jay,

Hopefully you can provide some insight on my issue.  I purchased a home in the state of WA in November of 2006.  On my closing statement there was a tax deduction for the proration of the remainder of the year (this is fine).  However I just received a letter from the bank (which holds the note) that my escrow account has gone into the negative due to unpaid taxes for 2006.  With some research I found that the closing agent never paid the taxes for 2006 from the previous owner.  I have been in contact with the closing agent and he is attempting to recover the monies from the seller but has had no luck so far (3 weeks has passed).  They have sent a standard letter with no response and a certified letter with no response.  I am now in a dire situation where my mortgage is going up on the first to cover this negative amount in my escrow account.  According to the closing agent his attorney will be paying a visit to the seller. However in the meantime where does this leave me?  According to the escrow company I will need to cover this added expense until the monies are recovered.  Should I demand the escrow company pays the delinquent taxes and then let them deal with recouping the money or should I seek legal advice?

Thank you,
Bracken

Answer
Hi Bracken,
You can never go wrong with seeking a real estate attorney's advice in a sticky situation like that. It sounds like your property taxes are paid in arrears (2006 taxes would be due in 2007), but this is important to know.  It also sounds like the closing agent has accepted responsibility for the mistake and has his "people" working on it.  I'm sure when you bought the home you purchased a title insurance policy at closing, which would legally protect you from the error that has occurred at no additional charge to you for the title companies legal counsel.  I think that's why your closing agent is volunteering his attorney's to help.

To be safe, I would pay the escrow shortage out of pocket and try to recover the funds later.  If you don't your lender will either increase your monthly payment to cover the shortage or consider it a missed payment which is not good either.  If the lender is never paid the money they are owed, in full from either you or the former owner, they have the right to place a lien on YOUR house.  If this situation get's that far, untangling that would be a nightmare, that's why I would suggest you keep a good paper trail but go ahead and pay the difference until it all gets straightened out.

I wish you the best!