Recently, I have had numerous problems searching titles because relevant information has been removed from probate files pursuant to Ohio law which makes it "confidential." While I can certainly understand the need to protect individuals privacy, this creates a real problem for title professionals, and potentially homeowners. If omitted confidential information could result in a lien on someone's home, there is a real hazard waiting for a title searcher.
I search titles in Ohio, so this may only be an issue here. However, with the push for greater protection of confidential information, those in other states may be experiencing this problem... or may be soon.
One of the things we look for in estate cases is confirmation that any estate taxes due have been paid. In Ohio, ORC § 5731.37 creates a lien on all property subject to estate taxes in the amount of estate tax levied, subject to certain exceptions. This can create a problem for title searchers if we are not allowed to examine the estate tax return.
ORC § 5731.90 makes tax returns, including estate tax returns, confidential and they are not subject to inspection or copying as public records. The only way to get a look at an estate tax return is to obtain a court order based on good cause shown. While a title examiner could probably make a case for "good cause" to inspect an estate tax return, it would not be practical to seek a court order, and it could not be done in a timely fashion.
Although the estate tax return is no longer in the file, Ohio Department of Taxation form ET-22 is still public information. This form indicates, in Part I, whether an Ohio estate tax return is required to be filed. If it is not required, there is no problem. However, if one is required to be filed, a title searcher must rely on Part II of the form to determine if estate taxes are a lien on the real estate.
Fortunately, ORC § 5731.21 states that all persons may rely on form ET-22 if it is stamped by the county auditor's office. If the auditor's office has stamped Part II of the ET-22, certifying that the "estate taxes shown due on the estate tax return... have been paid in full," the property shown on the form shall be free of any lien for estate taxes.
But, here is the catch... the ET-22 does not include a section for a list of property. The form states:
The real property attached to this certificate shall be free of any lien for estate taxes under Ohio Revised Code section 5731.02 and 5731.19(A). This certificate does not take effect until verification of payment of tax is received from the county auditor's office.
As you might suspect, the attorneys do not always attach a list of property. In fact, I have yet to see a for ET-22 with an attached description of property. This may not be particularly important, however, because if the taxes are paid there should not be any cause for lien to arise, unless perhaps there was an error in calculating the amount due. "This certificate does not reflect the tax commissioner's final determination of estate tax under R.C. section 5731.26."
For example, if the tax return is filed, the taxes shown due are paid, and the auditor's office stamps Part II of the ET-22, taxes will not be a lien on the real property attached to the certificate. However, if no property is attached to the form and the commissioner later determines the amount of tax to be insufficient, there could be a lien on the property for any amount remaining due.
Aside from this, on three recent searches I found a form ET-22 that indicated an estate tax return was required to be filed, but it was not stamped by the auditor's office verifying that the taxes were paid. It is possible that the gross estate was large enough to require the filing of a return, but after permitted deductions there was no estate tax due. The problem is that without examining the return, a title searcher has no way to know if any taxes were, in fact, due.
After bringing this up with the clerk in the probate court, I was advised to talk to the auditor's office. Unfortunately, the auditor's office had no further records on these estate cases. They could not verify if a return had ever been filed or if any taxes had been paid, or even if any taxes were due. I was told that if they had returns for those cases, they had been forwarded to the department of taxation and there was no record remaining in their office.
Estate taxes are due nine months from the decedent's date of death under ORC § 5731.23. All of these recent discoveries involved decedent's who had passed away more than a year ago. The clerk in the auditor's office seemed perplexed by my request in light of the time that had passed since the due date. She told me that "the attorney and/or executor would have been notified by the state if they still owed estate taxes because they would have assessed penalties and interest by now." This didn't help me and I tried to explain to her that even if they had been notified, I had no way of knowing about it and any unpaid taxes could be a lien on the real estate I was searching.
As a title searcher, all I could do was report the potential for estate tax liens on these properties and provide the phone number for the attorney who handled the estates. It will be up to my clients to follow up and determine whether there are any outstanding taxes. But, this does show the problem created by making the estate tax return "confidential." If there were no estate taxes due, I could verify this by examining the return and providing a copy to my client.
There seems to be something missing from the "plan" to exempt estate tax returns from the public record. The situation that is not addressed is where a return is required, but no estate taxes are actually due. There is nothing on form ET-22 to indicate the amount due (or that nothing is due) and if there is no tax due the auditor's office does not stamp the form "paid in full."
This problem is compounded by the lack of understanding the county offices have for what we do. This is understandable, since title searching isn't really relevant to the administration of estates or the collection of estate taxes. However, it would be nice if they realized that we need some way to verify if unpaid taxes exist that could be a lien on real property, even long after the estate is closed and the due date for estate taxes has passed.
If anyone has any experience with how this is handled in your state, or county, please share it. I would appreciate a good discussion on this aspect of title searching and what I perceive as a big potential E&O claim for unsuspecting searchers.
Robert A. Franco
SOURCE OF TITLE