Monday, October 8, 2007

Property taxes - be afraid. Be very, very afraid

I had a nice round of golf Friday with a friend who is one of the most seasoned veterans in the commercial title insurance business, and one of my four or five "go to" people that I would call on to do a deal with me if had the choice. He's bailed me out of more than one crisis in my career.

As we often do, we spent a little time swapping war stories on transactions, and I heard one that made think that, no matter how long you've been in real estate, you'll never encounter every crazy fact pattern. And this one was really bizarre and a little scary if you are buying land, so much so that I had to share it with you.

Here's the basic story: buyer and seller enter into a contract to sell property in Cook County. For you out-of-towners, Chicago is in this county. The property was in a "special service area" (SSA) created in the 1970s, meaning that extra tax levies can be imposed on the land. The title company pulls title and sees the assessment area, but the seller has no tax bills for the SSA, it is 30 years old, and no record exists in the assessor or government files that any special taxes were due and owing. The land is all under the same property identification number (PIN) Special tax counsel for the seller opined that the SSA no longer existed.

The buyer and seller close, and, lo and behold, the buyer gets a tax bill for the SSA. Not a little bill, mind you, but a seven-figure bill. It turns out that the general and special taxes were all under the same PIN, but that the general tax bill went to one address while, for some crazy reason, the special tax bill went to another address. My guess is that it was the address of a previous owner and that the special taxes never got transferred over.

At the end of the day, the seller paid the taxes, the title company ended up with a claim that was settled and everyone went on their merry ways, albeit a little shell-shocked. The moral of the story: if something on the title commitment looks a little out of sorts, think not twice but about fifteen times before saying "no big deal." And get your friendly neighborhood underwriter involved, as s/he may have seen this before.


Jeff Brown said...

David - Next Monday is 38 years in the biz. I've not heard of a story involving unknown real estate property taxes of anywhere near that magnitude. Wow!

The title company legal counsel must have been fit to be tied.

David Stejkowski said...

Jeff, believe it or not, the guy I golfed with Friday has, if my math is correct, 38 years in the title biz.

He thinks outside the box and really, REALLY knows his stuff. I would trust him to do the right thing on any deal, not just for his company but for his insured, because he knows the value of repeat business.

Yes, he was a very unhappy camper. And rightly so. He was basically sandbagged and, other than requiring a crazy holdback that would have made no sense under the facts, he had no way of knowing this was in fact a major issue.

C'est la guerre....