Nothing should be simpler than a real estate closing. The buyer shows up with money. The Seller has a deed and some keys. They shake hands and trade. Nice.
Turns out (over and over) that in the Venn Diagram of life, "simple" and "closing" seldom intersect. We learned of yet closing-related complication this week, courtesy of our friends at the City of Chicago, Department of Revenue. The Department is charged with "maximizing revenue collections to support the City's "vital" infrastructure.
One way they are doing this is by scrutinizing tax declarations filed with the County Recorder, every time a deed or other document is recorded of record. The Department is, apparently, checking the transfer tax declarations to see when they are dated and then comparing them to the dates when the transfer tax stamps are actually purchased.... and they going after purchaser's who may not being paying the tax in a "timely" fashion.
For better or for worse, Investigations have long focused attention on certain FHA related foreclosures that buyers (erroneously) thought were exempt from the City real property transfer taxes, and divorced couples, where one spouse "got the house." In the later scenario, the City asserts that the home "winner" must pay tax on the value of the share transferred). Lovely letters from the City. They demand the tax and, of course, late fees and penalties. Threats of lawsuits, that sort of thing.
The timing issues is a new aspect of the heightened scrutiny (at least new to me). Transfer taxes are due is due upon the earlier of (a) the delivery of a deed or (b) its recording, (see section 3-
33-030) and is payable through the purchase of stamps. (Never-mind the logical incongruity of a deed being recorded before it is delivered to the buyer).
In NEARLY EVERY transaction I work on, a title company acts as the closing escrow agent, they receive and disburse all the funds and the deed for recording, once it is delivered by seller to buyer. If the City does not get paid at the time of the closing, the tax is (they say) has been paid late.
Here's the example given to me today: The buyer and seller transact the sale of a Chicago property from New York. The deed and related closing documents are sent to the title company, who then records the deed 4 days later. Too late Mr. Buyer, sir. You did not pay the tax at the time of the transfer. Penalty, please too. Too bad Mr. Title Company who assured the buyer that the tax obligation had been satisfied: a $125,000 claim on the title policy!
This shouldn't be a problem for most of my clients; we close Chicago properties at reputable title companies that have facility to purchase tax stamps on the actual date of closing. On the other hand, this all came to my attention today when an underwriter from one of those reputable institutions asked my buyer to acknowledge potential liability for late fees that could result from a delayed (dry) closing today.
Wonder what is going to happen for Chicago closings at smaller title companies or in the outlying offices. There are either going to be a lot of disgruntled buyers or title claims.... or both.