Your listing broker isn’t legally responsible for knowing about a tax lien, but they should be aware of qualities that will make a home harder to sell.
Q: We placed a contract on a home that should never have been listed in the first place since it had over $150,000 in tax liens. Am I entitled to a refund of my inspection fee of $450 since the Seller’s Realtor did not perform her due diligence in listing this home?
According to the contract, if the Seller is unable to cure title defects and obtain a policy of title insurance within fourteen (14) days after the defect is discovered, the Buyer can terminate. This contract was terminated and the contract became null and void. The contract also stipulates that the Buyer can be reimbursed from the Seller for the cost of the title search. But my question is whether I can also get reimbursed for the cost of the home inspection.
A: In response to your issue with the listing broker, the listing broker is not responsible for and does not have an obligation to search the title on a home. The listing broker does not have a legal duty to know what items may or may not affect the title to the home. Having said that, the listing broker will certainly want to know whether a home will sell or can sell if it has serious issues, and a tax lien of that size would certainly qualify as a serious issue.
We have yet to meet a listing broker that is willing to put the time and effort into trying to get a home sold knowing that the issues involving the home will make it impossible to sell.
When a homeowner lists a home with real estate tax liens, federal tax liens, state revenue tax liens or litigation liens, the home may still salable, but the seller may have to take additional steps to get from the contract state to the closing table. And, the steps may vary depending on what liens are attached.
Let’s start with real estate tax liens. These liens may be for unpaid real estate taxes. If the sales price of the home is sufficient to pay off the mortgage and the unpaid real estate taxes, you will be able to close. If the money is not enough to close and the mortgage lender is unwilling to take less money than what it is owed, the sale will fall through.
Digressing just a bit, in the years since the Great Recession, many sellers and buyers became acutely aware of short sales. A short sale is where the sales price is too low for the sales proceeds to pay for all of the closing expenses and the liens on the home. In a short sale, the seller negotiates with the lenders or lien holders to see if they will accept less than the full amount owed in exchange for releasing the lien on the home. Many lenders agreed to take less than what they were owed and some equity line of credit holders would hold out for something rather than release the lien they had on the home.
In your situation, it would seem to us from your question that the tax liens might have been federal income tax liens as opposed to mortgage liens and that you didn’t want to give the seller additional time to negotiate a reduced payment amount with the IRS or other lien holder, if it wasn’t the IRS.
Recently, Sam worked on a deal where the seller of a property owed the IRS over $100,000 and when the IRS reviewed the sale documents, the IRS was willing to take only $25,000 to allow the sale to go forward. The IRS would still have the right to lien the seller’s other properties and go after the seller in other ways, but the IRS was willing to get some money now and allow the sale to proceed.
But all this sort of negotiation takes time, and you might not have been willing to wait and see what happened or if the lien holder was willing to negotiate with the seller and if the seller was unwilling or unable to come up with the money needed to allow the closing to occur. If this describes the situation you were facing, you were right to terminate and move on but you don’t have the right under the contract to get anything more from the seller other than what is under the contract. The seller was not in default under the contract and you had the remedies provided to you under the contract as well.
While those remedies may not have been as good as you would have wanted and you are out of pocket the $450 you spent on your inspection fee, you didn’t need to proceed with the purchase. Likewise, if you had the inspection but didn’t like the results of the inspection, you could have terminated the deal at that time but you would not have been entitled to a refund on the inspection fee.
There are plenty of fees and expenses that you can incur during the home sale and home buying processes that you’d lose if the deal does not go forward. When you apply for a loan, the lender may order an appraisal of the home. If the home doesn’t appraise out or for some reason the deal doesn’t close, you’ll still have to pay for the appraisal anyway. You might have inspection fees, radon inspection fees, termite inspection fees, septic and sanitary sewer inspection fees, lead based paint inspection fees, loan application fees, appraisal fees, municipality inspection fees and attorney’s fees.
All real estate deals carry risks. And there is money you’ll spend to see if the deal can get done. Just because you signed a contract doesn’t mean that the deal is without risk. As you found out, you lost $450 for inspection fees, but since you didn’t close and you weren’t stuck with a property that had a lien for $150,000 attached to it, you can move on to the next home and hope for a successful closing on that deal. (Which is more than the seller is able to say.)