Cure Required? Transfer Taxes

Posted By: LostinRegLand

Cure Required? Transfer Taxes - 10/13/21 04:04 PM

Reviewing a loan post close and do not like how the transfer taxes were handled. They were added on to the Closing Disclosure two days after consummation with a new CD issued.

Back story--Loan was a refi and to remove three individuals from title. Two where the borrowers parents and they had gifted their portion (no consideration given and an exemption existed for waiving transfer taxes) and the third person was an ex-boyfriend. He had lived in the home and had paid on the mortgage. As far as I can tell from reading our state law on transfer taxes no exemption existed as the ex boyfriend had paid on the home and so his part of the debt was being "assumed" by the borrower thus consideration was given and transfer tax was required.

From looking through the file and the processing information no transfer tax was quoted at the beginning as the right questions were not asked by the title officer or the processor to ascertain that transfer tax would be due. Subsequently the tax was left off of the LE.

The tax was also left off of the Closing Disclosure. I could find an email between the Title Officer and the closer 3 days prior to the CD issuance that the Title Officer stated transfer tax would be due but that they did not know the amount yet. The least amount of fee that can be charged is the recording fee for the document.

A day after closing the Quit Claim deed was filed and the tax amount was finalized. At that point a new CD was issued with the inclusion of the amount. The staff is telling me that trigged a Change Circumstance as they had new information that the tax was now due. I disagree.

I believe we owe a cure as I do not feel that due diligence was performed to determine if transfer tax was due. I also do not like the fact that a substantial fee was added to the costs after closing. I feel like this was not in the borrowers best interest.

I am getting push back from the loan department as they do not feel like there was any way they could have known that transfer tax was due until after the Quit Claim deed was filed.

In my opinion is was a lack of due diligence and asking the right questions/having a basic understanding of what constitutes consideration when it comes to transfer taxes and the exemptions.

I would like opinions on this Cure or No Cure?
Posted By: rlcarey

Re: Cure Required? Transfer Taxes - 10/13/21 07:42 PM

There is no such thing as a changed circumstance after the loan has closed. You do not get a do -over.
Posted By: LostinRegLand

Re: Cure Required? Transfer Taxes - 10/13/21 09:13 PM

Agree fully. Which is why I was completely shocked to see it. And shocked when I was argued with about it. I understood their can they quote a fee they don't have but I tried to get them to understand part of their job was due diligence to obtain that fee.

I told them that was not the intent of TRID at all. That the customer was to be provided a reasonable estimate of fees early on as to preclude any surprises at the closing table and that there should NEVER be a surprise after they become liable on the loan. I also explained that if they could not get the title company to give them a decent estimate of fees that we needed to rethink that company and if we have to use them that we need to do it very cautiously.
Posted By: LostinRegLand

Re: Cure Required? Transfer Taxes - 10/13/21 09:20 PM

While I am sure this is more of an implied item, is there anywhere within the regulation, commentary, FAQ's, Small Entity Compliance Guide, etc. that spell that out?

I have been reading everything I can over the last 3 days and have not found it yet. They will ask me for proof that a change circumstance cannot happen after consummation. To me that is common sense but I cannot go to the business line and say my common sense states "this".
Posted By: rlcarey

Re: Cure Required? Transfer Taxes - 10/14/21 12:03 PM

Are you going to find it in black and white - no. The fact that you failed to recognize or your vendor failed to recognize that transfer taxes would be due on this transaction has nothing to do with the consumer or the transaction. Tell us exactly what changed at the time of closing that involved the applicants, the transaction or the property? Only that would be a changed circumstance. A lender error or lender ignorance is never a changed circumstance.

You not only have TRID it worry about. How about UDAAP or even breach of contract. Going to the consumers after the loan has closed and saying - oh by the way you owe us $$$$ more - is the quintessential UDAAP. Not to mention that you going back after the fact and modifying the loan costs on a loan that has already closed probably gives the borrower amble grounds to sue you.
Posted By: John Burnett

Re: Cure Required? Transfer Taxes - 10/14/21 03:44 PM

If a lender makes mortgage loans in a state, it has to have some knowledge of the laws of the state and realize when certain costs are likely to be imposed -- or the good sense to contact someone who would know when something weird like the title situation involved here comes up. The lender is charged with making a good faith estimate of costs, and that means there has to be an effort to identify and quantify those costs. Your lender(s) didn't do that. The bank is responsible for the amount of the "surprise" increase.
Posted By: LostinRegLand

Re: Cure Required? Transfer Taxes - 10/14/21 04:01 PM

Thank you both my CEO and CLO also agree and we are moving forward with the cure. I am also recommending that our processing department receive basic training on transfer tax rules for our state.
Posted By: John Burnett

Re: Cure Required? Transfer Taxes - 10/14/21 07:02 PM

Admittedly, that set of circumstances isn't something you would expect to see often. I had to read it through a couple of times to understand who owned what and when. But I don't know diddly about Texas real estate law other than it can get complicated. So I can understand why a lender might have missed the fact that those taxes might be a factor. But that doesn't mean the borrower doesn't get the protection of the good faith estimate tolerance rule.