Q: I purchased my home last year. My title company failed to disclose a second homeowner’s association (HOA) that affects my property. The HOA is billing us for late fees associated with a transfer fee that they claim we owe. Do I have any grounds for compensation for the failure of the title company to properly do its job?
A: When you purchase a home, you should always obtain a title insurance policy. This policy is issued by a company that searches the public records for matters that affect a specific piece of property. The title company’s responsibility is to deliver a full and accurate accounting of the title issues and title problems affecting a home that you might be purchasing.
Most of the time, title insurance companies do a great job at disclosing issues or problems that affect title, but they sometimes make mistakes. Prior to closing on your home, you should have received a title insurance commitment or title report. That report should have itemized the name of the current owner of the home you were buying, the status of real estate taxes for the home, and then listed a whole number of items that affect the title to the home you were purchasing. When you receive the title insurance commitment or title opinion, you may not know or realize the issues that are shown in that report. Some items disclosed may be normal and of no consequence, but others can be real issues and problems for you if you purchase the property and those issues and problems are not attended to prior to handing over the money to close on the property.
Some of the items that might have been listed on your title commitment or report include easements, specific ordinances or laws, land restrictions, encroachments of buildings or parts of buildings on – or other improvements to – the home you were buying. The title commitment might have also shown whether your home encroached onto an adjacent property.
But that itemized list should also include a list of condominium or associations declarations that have been recorded against the property.
If you reviewed the list of items from your title report or title insurance commitment, you should have seen both associations that affect your home.
In some cases, informal homeowner associations exist but never record any documentation against the home. You need to see if the association making the claim against you was formally created and whether the documents that created the association affect your home specifically.
If the association does have organizational documents that are recorded or filed properly and they affect your home, you may have a case against the title company. In some cases, these association documents are disclosed in the title reports and title commitments, but the closing agent could have failed to obtain the proper documentation to make sure that amounts owing the association have been cleared.
The sequence of events would be as follows: the title report discloses the existence of the association and, depending on the process used in your state, the seller’s attorney or the closing agent requests and obtains documentation from the association to make sure that the seller’s doesn’t owe money to the association.
Whether the title company or the closing agent made a mistake in your transaction is hard to tell from your letter. You might need to do a bit of research to make sure that the title report or title commitment failed to disclose the association. If it failed to disclose it and the title company should have disclosed it (because the association’s documents are recorded or filed and affect your home), you then might have a right under your title insurance policy to file a claim against the title insurance company. You’ll need to review the title insurance policy’s jacket (terms and conditions) to follow the procedures in filing a claim.
If the title commitment or title report disclosed the second association but the closing agent failed to pay any amount owed by the seller, you may have a claim against the closing agent. Keep in mind that the closing agent worked for your lender and did not represent you in the transaction. In some states the closing agent will give you a document indicating that agent’s responsibilities in the transaction.
You might be surprised to find out that those responsibilities are limited. However, to the extent that the closing agent has responsibilities to the lender, you might be able to require the closing agent to pay any fees that remained unpaid by contacting your lender and having them force the closing agent to honor its responsibilities under the closing documents to have all amounts owed by the seller paid.
If the agent fails to make good on paying the amount they missed, you might have a second shot at getting the agent to make the payment by filling a claim on the title insurance policy with the title insurance company.
For the many buyers and sellers who go into a real estate closing thinking that there is someone on their side to protect them, they should know that closing agents and title companies hired to close residential transactions normally only need to protect the lender in the transaction.
You are on your own when it comes to reviewing the documents and knowing what to object to even if you don’t know what you are looking for or what you should object to. The title company’s responsibility is to deliver to you an accurate title insurance commitment or title report for you to review.
In this case if the title commitment or title report disclosed the second association, you could have objected at that time that you didn’t know about its existence and inquired as to the monthly costs and other fees. The purpose of the title insurance commitment is to give you notice of items that affect the title to the home you are about to purchase. It’s there to avoid future problems and issues and if an items isn’t disclosed to you in the title insurance commitment or title insurance opinion, you would have a claim for that subsequently found problem or issue against the title insurance company.
For further details and options, you might want to talk to a real estate attorney in your area who has experience in dealing with title insurance claims.
Read more about what’s included in a title search.