Crossing State Lines: Pennsylvania Title Practice 2011

Featuring:

Lawrence C. Bell, Esq. Regional Underwriting Counsel

Douglas D. Goss, Esq. & Frances M. Hack, Esq. Pennsylvania State Underwriting Counsels

www.stewart.com/pennsylvania

Pennsylvania is a Filed Rate and Filed Form State

All agents writing in PA must have a copy of

the Manual of Title Insurance Rating Bureau

of Pennsylvania (TIRBOP) approved by the

Department of Insurance. The latest version is

dated 3/1/2011.

We may only issue policies and charge rates

and fees which are approved by the PA

Department of Insurance.

Additional charges

• Additional charges for services are not permitted. PA has an considered an “all inclusive premium” rate.

• Reasonable Settlement charges (not defined) may be made only if the settlement takes place out of the office, or out of your regular business hours. Notice of this fee must be made prior to settlement.

• The PA commitment cover has such a notice preprinted on the form for your convenience.

Pass Through Charges

• The Insurance Department does allow us to pass-through charges made to us by outside vendors we use in order to clear title or record document.

– Tax certification fee

– Courier fees

– Bank Wire fees

– Recording charges

However we may not add an extra charge to the pass-through charges.

Loan Policies

• APPROVED LOAN FORMS – 6-17-06 ALTA Loan Policy as modified by TIRBOP (4/1/07) – ALTA Short-Form Residential Loan Policy, as modified by

TIRBOP (06/16/07) – Sheriff’s Distribution Policy (03/01/95) – ALTA Short Form Expanded Coverage Residential Loan

Policy (For a One-to-Four Family Residence), as modified by TIRBOP (Rev’d 07/26/10) (This form requires a additional owner’s affidavit and a different Schedule A)

– ALTA Expanded Coverage Residential Loan Policy (For a One-to-Four Family Residence), as modified by TIRBOP) (Rev’d 07/26/10) (This form requires a additional owner’s affidavit and a different Schedule A)

Owner’s Policies

• 6-17-06 ALTA Owner’s Policy of Title Insurance, as modified by TIRBOP (4/1/07)

• ALTA Homeowners Policy of Title Insurance (For a One-to-Four Family Residence) (Rev’d 02/03/10) – This policy requires an additional seller’s affidavit and

a Schedule A that differs from the basic Owner’s Policy.

Both Owner’s and Lender’s enhanced policies may not be used on vacant land or for new construction completed within the last 6 months.

Endorsements

• There are 50 filed endorsements for use in Pennsylvania.

• All the forms that are acceptable for the residential transactions can be found on the Stewart website for PA (www.stewart.com/pennsylvania)

• Additional endorsement may be obtained by contacting the State Office and reviewed by Underwriting Counsel.

Closing Service Letters

• The Closing Service Letter may be issued only for: – Your Title Agency; or – A Stewart Approved Attorney

• Closing Service Letter may be issued only for the benefit of a lender, its assignees, a warehouse lender and a purchaser or lessee when lender’s insurance is being purchased and provides protection against fraud, misapplication of funds or failure to follow written closing instructions.

• The Cost is $75 per transaction. • It is not issued to private lenders.

Approved Attorneys

• To become an Approved Attorney, the attorney must be a Pennsylvania attorney in good Standing with a Pennsylvania Supreme Court. An application and a background/credit check must be completed.

• During the approval process, we will authorize the issuance of courtesy CSL’s on a case by case basis.

Marital Rights

• Tenancy by the Entirety – Each marital partner owns an undivided interest in

the whole property. The husband and wife must be married at the time of taking title.

– Pennsylvania does not require any specific language in the deed to create this tenancy. If they were married at the time of taking title, they own the property as tenants by the entirety.

– This tenancy will not automatically arise when they marry after taking title.

Definition of Marital Property

23 Pa.C.S. § 3501 (2007) § 3501. Definitions (a) GENERAL RULE.-- As used in this chapter, "marital property" means all property acquired by either party during the marriage and the increase in value of any nonmarital property acquired pursuant to paragraphs (1) and (3) as measured and determined under subsection (a.1). However, marital property does not include: (1) Property acquired prior to marriage or property acquired in exchange for property acquired prior to the marriage. (2) Property excluded by valid agreement of the parties entered into before, during or after the marriage. (3) Property acquired by gift, except between spouses, bequest, devise or descent or property acquired in exchange for such property.

Definition of Marital Rights

"marital property" means all property acquired by either party during the marriage and the increase in value of any nonmarital property acquired prior to the marriage or acquired by gift, devise or descent.

• Therefore, it is imperative to have both spouses join in any deed or mortgage even if only one spouse is in title.

Judgment Against one Spouse

• In PA a judgment against one spouse is a good judgment, but while both are married it is not executable. It is a inchoate lien.

• Once a divorce decree is granted, or the death of the non-debtor spouse, that judgment is good and the lien dates from its filing date.

• Therefore, tenants by the entirety can sell their property free and clear of a judgment against only one spouse, but cannot refinance their property clear of a single spouse judgment.

IRS Judgments against One Spouse

• An IRS judgment against one spouse only, does attach to the property and is presently executable. The IRS lien actually attaches to the debtor’s expectancy to inherit full title.

• Any IRS lien against either spouse MUST be paid or released from the property.

• Because of privacy concerns the IRS needs form 8821 (Authorization for Information) to be signed by the debtor for you to get any payoff information.

Common Law Marriages

• No Common Law Marriage contracted after January 1, 2005, are valid. Common Law Marriages contracted prior to 1/1/2005 may be valid, but only a Court of law may make that judgment. Therefore, for title insurance purposes, all common law marriages do not qualify for tenancy by the entirety status.

Civil Unions

• The Commonwealth of Pennsylvania does not recognize civil unions.

• There will be transfer taxes due to PA for any transfers between civil partners.

• Some PA cities have passed civil union ordinances which waives that city’s transfer tax on such transfer. You must check with each municipality before disregarding any transfer tax.

• However, all other statutes apply as if the civil partners are tenants in common.

Probate Procedures

• Most important:

– Get a copy of the will

– Get a copy of the Letters Testamentary or Administration (they must have been issued within the prior 6 months period)

– Get a copy of the Inheritance Tax return

Probate Procedures

• From the Will you will see

– who are the heirs

– who is to be appointed as the personal representative or trustee if the will includes a trust

– If there has been a specific devise of the property to be insured

Specific Devises

• A Specific Devisee under the will, MUST join in any deed executed by the personal representative

• If the specific devisee is also the personal representative, that person must sign the deed twice; as personal representative then again as specific devisee

Personal Representatives

• If the Personal Representative is a PA resident, he is qualified to sell the property to an outside party for good consideration free an clear of any interest of the heirs of the estate or claims against the estate but not free of any judgments against the decedent or the estate.

• If the Personal Representative is not a PA resident, he must first file ancillary letters in the county in which the property is located and obtain an appointment as personal representative for the estate in PA.

• A foreign personal representative is usually required to post a bond. You must make certain that bond is equal to or greater than the value of the real property to be insured. If not, require an increase in the bond.

Personal Representatives

• When a Personal Representative is not selling the property to an outside third party for good and valuable consideration – The property is subject to the lien of any claims against the

estate

– Any distribution to heirs prior to one year after the advertisement of the estate is an “At Risk Distribution” and any claims are liens against the property.

– A Court Order approving transfer of estate property to the personal representative is required (20 Pa.C.S. §3356). We will waive the Court Order requirement is the PR is also the special devisee under the will for this property.

Spousal Rights

• If the surviving spouse is not in title and is a disinherited spouse, they have the right to “take against the will” within 6 months of the death – The will would either specifically state that the spouse

is disinherited or that the spouse will be left only a nominal sum

– Do not insure the title until 6 months after the death in case the spouse files to “take against the will”

– The spouse may execute a waiver of this right. This waiver should be notarized and filed in the probate file with the Orphans’ Court.

Inheritance and Estate Taxes

The Rate of inheritance tax depends upon the beneficiary of the property under the will or by intestate succession. Unpaid PA inheritance and Federal estate taxes are a lien upon the property of the decedent as of the date of death. The Federal tax is a lien for 10 years. The PA inheritance tax lien is a lien till paid or 20 years after death IF there has been a transfer to an outside third party for good and valuable consideration during that 20 years.

Life Estates

• When an owner gives away his property and reserves to himself a life estate, this life estate is taxing for inheritance taxes in his estate.

• When a person receives a life estate in property from another, this life estate is not an inheritance taxable life estate.

• It is the gift plus reservation of a life estate that triggers the inheritance tax.

Escrow for unpaid taxes

• We cannot accept a letter from the PR or the attorney for the estate guaranteeing the payment of the tax.

• Escrow 1 ½ times the amount of tax that will be due on the consideration paid for the property less only any mortgage payoff amount.

• Release the escrow only after the PR obtains the Appraisement from the Department of Revenue showing a 0 balance due. The appraisement usually takes 6 months from the filing of the return. ( 72 P.S. §9137)

Rate of PA Inheritance Taxes

EFFECTIVE AS OF DATE OF DEATH SPOUSE LINEAL SIBLING COLLATERAL*

04-07-1826 TO 1846 0% 0% 2½% 2½%

04-23-1846 TO 07-10-1917

0 0 5 5*

07-11-1917 TO 05-04-1921

2 2 5 5*

05-05-1921 TO 12-10-1951

2 2 10 10*

12-11-1951 TO 12-29-1967 @ 4:00 P.M. 2 2 15 15*

12-29-1967 AFTER 4:00 P.M. TO 06-30-1994

6 6 15 15

07-01-1994 TO 12-31-1994

3 6 15 15

01-01-1995 TO 06-29-2000

0 6 15 15

07-01-2000 TO PRESENT 0 4.5 12 15

Federal Estate Tax Exemption

• If the value of the estate is less than the Federal Estate Tax Exemption and the decedent had not made any gifts during his lifetime, we would not have any federal estate taxes due. We can rely upon an liable for federal estate taxes.

• However, the valuation of the estate for federal estate tax purposes includes any life insurance which is not reported on the PA inheritance tax return.

Federal Estate Tax Exemption

Year Estate Tax Exemption

Top Estate Tax Rate

1997 $600,000 55%

1998 $625,000 55%

1999 $650,000 55%

2000 $675,000 55%

2001 $675,000 55%

2002 $1,000,000 50%

2003 $1,000,000 49%

2004 $1,500,000 48%

2005 $1,500,000 47%

2006 $2,000,000 46%

2007 $2,000,000 45%

2008 $2,000,000 45%

2009 $3,500,000 45%

2010 $5,000,000 0%

2011 $5,000,000 35%

2012 $5,120,000 35%

2013 $1,000,000 55%

Federal Estate Tax Exemption

• Because of the differences in estate valuation between the federal estate tax statutes and the PA inheritances tax statutes, we cannot rely upon exemption table to assume there will be no federal estate taxes due in an estate.

• Require proof that the estate will not be liable for any federal estate taxes.

Estate Recovery Program

• All states are required to recover amounts paid from Medicaid for the decedent’s care.

• PA places the liability on the personal representative of the estate to determine whether there is any amount due by contacting the PA Department of Welfare, Estate Recovery Program.

• If the PR is selling the property to a outside third party for good and valuable consideration, that liability remains on the PR and we need not require any letter of proof from Estate Recovery Program.

• If the PR is not selling the property to an outside third party for good and valuable consideration, the lien attaches to the property.

Estate Recovery Program

Send a letter to: Department of Public Welfare TPL Casualty Unit Estate Recovery Program P.O. Box 8486 Willow Oak Building Harrisburg, PA 17105-8486 RE: Request for Welfare Lien Search Estate of: Social Security # of Decedent Date of Death: Address of property to sold: Settlement Date: Pursuant to Act 49 of 1994, 62 P.S. §1412, a welfare lien may be asserted against the above captioned property owned by the named decedent at the time of his death. Would you please indicate in writing what, if any, welfare claims are open for the decedent. The department must submit its claim within 45 days of receipt of the notice of the claim shall be forfeited.

Succession

• In Pennsylvania, the property passes to the heirs under the will or by intestate succession at the moment of death.

• Therefore, any judgment filed after death against a beneficiary of the estate, attaches to the property.

• Under 20 Pa.C.S. §3357, the PR may sell the property for good and valuable consideration free an clear of any claims of the heirs or claims of the creditors of the heirs.

Foreign Probate

If the estate was probated in a different jurisdiction

Out of County

Require a certified copy of the probate file to be filed in the county in which the property to be insured is located

Out of State

Require an exemplified copy of the probate file to be filed in the county in which the property to be insured is located.

Out of State fiduciary (see slide 20)

Standard Exceptions Schedule B of the policy or policies to be insured will contain exceptions to the following matters unless the same are disposed of to the satisfaction of the Company:

State Standard Exceptions:

1. Defects, liens, encumbrances, adverse claims or other matters, if any, created, first appearing in the public record or attaching subsequent to the effective date hereof but prior to the date the proposed insured acquires for value of record the estate or interest or mortgage thereon covered by the commitment.

2. Discrepancies or conflicts in boundary lines, easements, encroachments, or area content which a satisfactory survey would disclose.

3. Any lien, or right to a lien for services, labor or materials heretofore or hereafter furnished, imposed by law and not shown by public records.

4. Rights or claims of parties in possession or under agreements of sale not shown by public records.

5. Taxes or special assessments which are not shown on the public record.

6. Possible additional tax assessments for new construction and or major improvements.

7. Any reservation, restriction, limitations, conditions or agreements set forth in the instrument by which title is vested in the insured.

8. Subject to all coal and mining rights and all rights relating thereto: THIS DOCUMENT DOES NOT INCLUDE OR INSURE THE TITLE TO THE COAL AND THE RIGHT OF SUPPORT UNDERNEATH THE SURFACE OF THE LAND DESCRIBED OR REFERRED TO HEREIN AND THE OWNER OR OWNERS OF SUCH COAL MAY HAVE THE COMPLETE AND LEGAL RIGHT TO REMOVE ALL SUCH COAL AND, IN THAT CONNECTION, DAMAGE MAY RESULT TO THE SURFACE OF THE LAND AND ANY HOUSE, BUILDING OR OTHER STRUCTURE ON OR IN SUCH LAND. THE INCLUSION OF THIS NOTICE DOES NOT ENLARGE, RESTRICT OR MODIFY ANY LEGAL RIGHTS OR ESTATES OTHERWISE CREATED, TRANSFERRED, EXCEPTED OR RESERVED BY THIS INSTRUMENT. Policy does not insure against subsidence.

9. Excepting and reserving that portion of the premises lying in and along the roadbed(s); subject to public and private rights thereon.

10. Company assumes no liability for the possible designation of the premises insured hereunder as a Wetlands Area by any governmental agency.

11. Subject to any line rights of way including electric line, telephone line, cable line, water and sewer line rights of way in use and existing in, on, or under the ground and all rights in relation thereto.

12. Amount and computation of area or acreage is not insured.

13. Any lease, grant, exception or reservation of oil or gas rights, storage rights, or minerals or mineral rights appearing in the Public Records

Standard Exceptions

1. Defects, liens, encumbrances, adverse claims or other matters, if any, created, first appearing in the public record or attaching subsequent to the effective date hereof but prior to the date the proposed insured acquires for value of record the estate or interest or mortgage thereon covered by the commitment.

Remove w/ clear bringdown; update commitment with any items found on the bringdown.

Standard Exceptions

2. Discrepancies or conflicts in boundary lines, easements, encroachments, or area content which a satisfactory survey would disclose.

Removed only by E300 or E301

Standard Exceptions

3. Any lien, or right to a lien for services, labor or materials heretofore or hereafter furnished, imposed by law and not shown by public records. (Replace with pending disbursements clause in new construction insurance AND call underwriting for approval).

Remove Lender only and only if no new construction

4. Rights or claims of parties in possession or under agreements of sale not shown by public records.

Remove or Modify for Lender only

Standard Exceptions

5. Taxes or special assessments which are not shown on the public record, not yet due and payable.

Exception remains

6. Possible additional tax assessments for new construction and or major improvements. Not yet due and payable.

Remove if no construction or new improvements

Standard Exceptions

7. Any reservation, restriction, limitations, conditions or agreements set forth in the instrument by which title is vested in the insured.

Remove for the Lender if no reservations etc. set forth in insured deed.

Standard Exceptions

8. Subject to all coal and mining rights and all rights relating thereto: THIS DOCUMENT DOES NOT INCLUDE OR INSURE THE TITLE TO THE COAL AND THE RIGHT OF SUPPORT UNDERNEATH THE SURFACE OF THE LAND DESCRIBED OR REFERRED TO HEREIN AND THE OWNER OR OWNERS OF SUCH COAL MAY HAVE THE COMPLETE AND LEGAL RIGHT TO REMOVE ALL SUCH COAL AND, IN THAT CONNECTION, DAMAGE MAY RESULT TO THE SURFACE OF THE LAND AND ANY HOUSE, BUILDING OR OTHER STRUCTURE ON OR IN SUCH LAND. THE INCLUSION OF THIS NOTICE DOES NOT ENLARGE, RESTRICT OR MODIFY ANY LEGAL RIGHTS OR ESTATES OTHERWISE CREATED, TRANSFERRED, EXCEPTED OR RESERVED BY THIS INSTRUMENT. Policy does not insure against subsidence. Statutory language in all coal counties. Must be in bold 10 pt. font. May not be removed. Call the State Office for any required affirmative coverage. May be removed for properties located in the non-coal counties.

Standard Exceptions

9. Excepting and reserving that portion of the premises lying in and along the roadbed(s); subject to public and private rights thereon. Remove is the legal description runs outside the roadbed. 10. Subject to any utility line right-of-ways including electric line, telephone line, cable lines, water and sewer line right-of-ways in use and existing in, on, or under the ground and all rights in relation thereto. May be removed for Lender only.

Standard Exceptions

11. Amount and computation of area or acreage is not insured.

May be removed for Lender only if the legal description has no “Containing” clause or containing clause has “more or less.”

12. Company assumes no liability for the possible designation of the premises insured hereunder as a Wetlands Area by any governmental agency.

May be removed for Lender only if survey shows no wetlands on the property.

Standard Exceptions

13. Any lease, grant, exception or reservation of oil or gas rights, storage rights, or minerals or mineral rights appearing in the Public Records.

May be removed in the non-Gas & Oil counties for Lender only. May also be removed in the Gas & Oil counties is the search runs back to 1850 and it has been determined that there are no gas & oil leases or reservations for gas & oil rights.

Search Requirements

• 60 year search required – Search must go back to a valid transfer between

unrelated parties for valuable consideration • You may rely upon a prior policy of title insurance, if that

prior policy had been a 60 year search (for example a Owner’s Policy would have had a 60 year search).

• You may not rely upon any prior policy if you have reason to believe that the prior policy is incomplete (less than a 60 year search or the prior policy was issue by a failed title agent).

• The search should begin 1 year before the prior policy date.

Search Requirements

• Judgments and Liens: Search of the Prothonotary for owner of the property for the lien duration period.

Lien Duration

Lien Type Lien Duration Comments

Mortgage Cloud on Title. Must be cleared.

Only a presumption of payment 20 years after maturity. Presumption of payment may be rebutted in court. Must be cleared.

Judgment: Private Creditor 5 years Does not affect after acquired property or property held as tenants by the entirety. Lien dates from filing date, refi must pay off one spouse judgments. May be revived against a terre tenant within 5 years of the deed into that terre tenant.

Lien Durations

Homeowner’s Assn. lien 5 years Must be filed within 3 years after the assessment is due. Is an unfiled lien within 3 years. In judicial sale, 6 months of assessments due prior to the Sheriff’s sale has priority in payment over the mortgage being foreclosed.

Mechanics’ Claim lien 2 years for the claim; 5 years for the judgment.

Claim must be brought to a complaint within 2 years of filing the claim. Judgment must be obtained within 5 years of the complaint. Valid against only the property it is filed against.

Lien Duration

UCC filing 5 years Filed in Recorder of Deeds in county where property is located and in the State Department where the debtor is registered. Need not be signed by debtor. May be refiled to continue lien.

Corporate tax liens Indefinite Obtain corporate tax lien certificate from Corp. Bureau of State Dept.

Preferential Tax Assessments

Taxes are Rolled back in time

If preferential tax assessment agreement is breached, the tax lien goes back to 5 or 7 years (depending on the statute). Tax liability is rolled back to prior rate

Lien Durations

Lien Type Lien Duration Comments

Child Support liens (DRO) 20 years after the last payment is due

Affects after acquired property. Does not affect tenants by entirety property.

Criminal Probation liens Indefinite State or County: Does not affect after acquired property. Federal: Affects after acquired property (see US judgments)

Dept. of Revenue liens Indefinite Search back to 12/12/1986

Federal Tax liens 10 years 30 days Affects after acquired property. Will be subordinate to purchase money mortgage. Affects tenants by the entirety.

Lien Duration PA Unemployment Compensation Liens (Dept of Labor & Industry)

5 years Affects after acquired property.

US Judgments 20 years Affects after acquired property.

Real Estate taxes 20 years RE taxes are lien from 1st day of the fiscal year for the current year. Co. & Twp. Taxes—Jan. 1; School—July 1. The bills come out later in the year so escrows must be held during time the bills are not available. Taxing authorities may be paid but sold the lien to collection companies who now own the lien rights. Must check with each municipality.

Lien Duration

Municipal Liens 20 years Affect only the property it is filed against. Municipalities have the right to sue for payment. Determine whether the lien is a judgment from a lawsuit, or a municipal claim.

Federal Estate taxes 10 years from the date of death

Unfiled lien against property of decedent.

PA Inheritance tax Lien as of date of death Unfiled lien against property of decedent. May be lost after 20 years IF there was a third party transfer for valuable consideration during that 20 year period.

Domestic Relations Support Liens

Domestic Relations Liens are filed in the Prothonotary but may be a lien prior to this filing. The lien dates from the first date the support payment is unpaid. check https://www.humanservices.state.pa.us/csws/home_controller.aspx Click on Lien Search. You must set up an account and have a password. You will need the SS# or the date of birth to check for liens. If no liens are reported, copy this page for the file. If there are liens reported, you must contact the local Domestic Relations Office to obtain a certification ($20). This certification is good for 60 days.

Transfer Taxes

• PA imposes a 1% transfer tax on the value of the property transferred.

• PA has no mortgage tax • The Local municipalities also impose a transfer

tax on the value of the property transferred. – Each municipality is different but most impose a 1%

transfer tax. – Check

http://munstatspa.dced.state.pa.us/FindLocalTax.aspx?T=1 to find that municipality’s Realty Transfer tax percentage

Transfer Taxes

• The value of the property is determined by: – The consideration for the property; or

– The computed value of the property which is • The assessed value of the property x common level ratio

valuation factor.

• The assessed value is found in the search of the tax assessment records

• The common level ratio valuation factor is the same for the entire county and can be found at http://www.portal.state.pa.us/portal/server.pt/community/realty_transfer_tax/11417/common_level_ratios/580584

Click the “Current List Factors”

Transfer Taxes

• You would use the computed value of the property if there is no consideration or very low consideration set forth in the deed.

• You must also attach an Realty Transfer Tax Statement of Value (form # rev. 183) to get the deed recorded and pay the property transfer tax. (See http://www.revenue.state.pa.us/portal/server.pt/community/realty_transfer_tax/14710 ) for this form.

• Ask the seller to sign this form. If you sign the form, the Dept. will look to you to verify any discrepancies.

Transfer Taxes

• Exemptions – Spousal transfers – Lineal transfers (parents/ grandparents to child) – Sibling transfers – Parents to child and spouse – Church to Church of the church building – Deed of correction or confirmation – Quit claim deed – Government to any government instrumentality – Sheriff deed to plaintiff in execution of debt – Deed in Lieu of foreclosure to lender – Estate/trust distribution of property to heirs – Transfer into trust but only if all possible beneficiaries are heirs of grantors;

must produce a copy of the trust – Transfers pursuant to merger or consolidation – Transfer of leasehold interest unless the terms is or can be 30 years or more

Statement of Value

• All transfers for which you claim an exemption from the transfer tax, requires the Realty Statement of Value to be attached (see slide 53 for where to obtain this form).

• Mergers or consolidations require the Realty Transfer Tax Declaration of Acquisition (form # rev 1728) which may be obtained at the same website as the Statement of Value. (Can be found

in the same website as the Statement of Value)

Payment of Transfer Tax

• Most of the recorder’s require 2 checks: one for the payment of recorder’s fees and one for the total transfer tax. Both are normally payable to the Recorder of Deeds.

• Some counties require 3 checks. It is best to call ahead so that your recording will not be held up.

• We must record within 10 days of the transaction. After 30 days, there will be penalties and interest on the transfer taxes and there may be intervening liens filed prior to our insured documents.

Recorder of Deeds

• PA has 67 counties. Each county has their own set of rules and charges.

• It is always good to call the local Recorder of Deed’s office to verify the cost of recording the documents and any requirements for recording a document.

• This website will give you all the Recorder of Deeds in PA.

http://www.parecorders.com/dnn/RecordersRegistry/tabid/60/Default.aspx

Real Estate Taxes

• Most counties are on a calendar year basis for County and Township taxes. The School taxes are on a fiscal year basis—July 1 thru June 30. (Philadelphia has only city and school taxes and both are on a calendar year)

• The lien for the unpaid tax would be January 1 or July 1. • However, the bills are not available until March or mid-July and

cannot be paid prior to the lien period. • Escrow for the current years taxes if you settle after the 1st of the

calendar or fiscal year when these tax bills are unavailable. You may rely on the tax escrow to be held by the lender.

• Some counties permit the payment of real estate taxes in quarterly payments. At settlement the full year must be paid in full because any future unpaid tax will become a lien as of January 1 or July 1 and predate our deed/mortgage.

Municipal Charges

• Some municipalities also supply and charge for municipal services: – Water, sewer – Library – Fire hydrants – Sidewalks Such municipal services are lienable if unpaid. This lien dates from the date of service or the date of the notice of assessment and will, therefore, pre-date any deed or mortgage to be insured. The local municipal office should be contacted to determine whether there are municipal charges outstanding.

Property and Municipal Charges

• Never rely on verbal communications to verify the payment of municipal charges.

• There are search companies that specialize in collecting the property and municipal charges.

• The counties can sell their accounts collectibles to collection companies. This clears the unpaid taxes off their books, but the lien is still on the property. The lien is now owned by the collection company. You must ascertain whether the taxes are not liened. The specialized search company will know which counties have sold their liens and can determine whether the property has a lien for unpaid property or municipal services.

• The cost of this search is a valid pass through charge on the settlement sheet.

Interim Taxes

• When a property has had a recent improvement, the county will reassess the property for taxes. This process is triggered by the building permit.

• Once the improvement is completed, the tax assess is notified. It may take a couple of months the officer to reassess the property, but the difference in the reassessed value and former value of the property is called the interim tax bill. This interim tax bill relates back in time to date of completion of the property.

Interim Taxes

• The seller’s/borrower’s affidavit asks the seller/borrower if there had been recent improvements to the property. If there has been, there may be an interim tax bill that is due and as yet unpaid. The lien of which will predate our insured deed/mortgage.

• Contact the tax assessment office for information on possible interim tax bills.

Certificate of Occupancy

• Many municipalities require a certificate of occupancy to be issued prior to

– Occupancy by a new owner; or

– Occupancy by the owner in new construction or a recent improvement.

The Certificate of Occupancy is not in and of itself a title requirement because the title policy does not insure against a violation of local ordinances.

Certificate of Occupancy

• However, in obtaining a certificate of occupancy the local municipality also checks the property for past due liens. This is a title issue.

• Request a local municipality to issue a Certificate of Occupancy for all sales or “permanent following construction” mortgages.

Special Taxing Districts

• Local municipalities may set up an area for redevelopment and assess a special taxing district to pay for such redevelopment.

• The only way to determine whether your property is in a special taxing district is to contact the local municipality because those tax bills are sometimes not included in the real estate tax bills.

PA MECHANICS’ LIENS

• A contractor, subcontractor and sub-subcontractors

may file a mechanic’s lien for a period of six (6) months from completion of the work. An action to enforce the lien must be brought within two (2) years of the filing of the lien or the lien is extinguished.

• Mechanics’ liens for new construction relate back to

the time of first visible commencement of construction and have priority as of that date. Liens for alterations and repairs have priority as of the date of the filing of the claim.

Statutory Mortgage Priority

• In Pennsylvania, mechanics’ liens will be subordinate to the following:

– Purchase Money Mortgage – These are defined as a mortgage (i) taken by the seller of the mortgaged property to secure payment of all or part of the purchase price; or (ii) taken by a mortgagee other than the seller to secure repayment of money actually advanced to the mortgagor at the time the mortgagor acquires title to the property to pay all or part of the purchase price so long as such mortgage expressly states that it is a purchase money mortgage. [42 Pa C.S.A § 8141 (1)]; and

– Open- End Mortgage – Defined as a mortgage which secures advances up to a

maximum amount of indebtedness outstanding at any time stated in the mortgage, plus accrued and unpaid interest. [42 Pa C.S.A. § 8143 (f)] and, most importantly, the proceeds of which are used to pay all or part of the cost of completing erection, construction, alteration or repair of the mortgaged premises secured by the open-end mortgage.

No Recent Construction

• For properties where there has been no construction, alterations or repairs performed during the prior six (6) months based on actual knowledge and/or the Seller’s or Mortgagor’s affidavit the property may be insured and the standard mechanic’s lien exception (“Any lien, or right to a lien for services, labor or materials heretofore or hereafter furnished, imposed by law and not shown by public records.”) may be removed on the Loan policy only. Owner’s coverage may be purchased at the rate set forth in the TIRBOP Manual of Rules and Rates.

Recent Construction

• For properties where there has been construction, alterations or repairs during the prior six (6) months the following will apply:

1. If a waiver/stipulation against liens was properly filed prior to commencement of construction on a residential project (residential properties of three stories or less), mechanics’ lien coverage can be given on both the Loan and Owner’s policies. A stipulation against liens between affiliated parties may not be relied upon to give mechanics’ lien coverage (49 P.S. § 1407);

Recent Construction

2. In the case of residential construction of three stories or less, if the stipulation against liens has not been properly filed mechanics’ lien coverage may only be given on the Loan Policy where you have a purchase money mortgage or an open-end mortgage used for construction. No mechanics’ lien coverage may be given on an Owner’s Policy and the Enhanced Owner’s Policy may not be issued without signed lien waivers from the general contractor and all subcontractors and sub-subcontractors who have done work on the property in the last six (6) months;

Recent Construction

• 3. In the case of residential construction of more than three stories and commercial projects mechanics’ lien coverage is not available on the Owner’s policy unless a payment bond is to be posted by the general contractor and the final form of the bond has been approved by the appropriate Stewart underwriting personnel or, in the event of completed construction, unless signed final lien waivers are received from the general contractor and all subcontractors and sub-subcontractors given for actual consideration paid. Mechanics’ Lien coverage is also not available on the Loan Policy in these circumstances if the mortgage is not a qualified purchase money mortgage or open-end construction mortgage or, again, unless signed final lien waivers are received from the general contractor and all subcontractors and sub-subcontractors.

WE ARE HERE FOR YOU!

Pennsylvania State Office

800-563-1155 or 610-687-0400

FAX: 610-687-0464

Douglas D. Goss, Esquire, dogoss@stewart.com

Frances M. Hack, Esquire, fhack@stewart.com

Kelly Ryan, Esquire, keryan@stewart.com

QUESTIONS?

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