Dan Genz, The Examiner
2008-04-11 07:00:00.0
Current rank: Not ranked

WASHINGTON -

The housing slump is threatening tax refunds averaging $2,200 for Northern Virginia property sellers who relied on companies that have gone bankrupt.

The state-mandated refund system relies on settlement agents to collect the money for their clients, but a spate of bankruptcies and closures within the hard-hit industry has wiped out key players in the process.

Instead of getting checks in the mail, taxpayers whose title companies or settlement firms have gone out of business will have to make an effort to collect the money.

“We are required to give the money to a settlement agent, and the problems occur when the settlement agent is no longer active,” Fairfax County Circuit Court Clerk John Frey said. “I know in the last year a number of them have gone out of business. There has been a big shake-up in the industry.

“The statute didn’t provide us any leeway here,” said Frey, whose office has to dole out more than $5 million of the approximately $12 million collected before the Virginia Supreme Court ruled the taxes unconstitutional in February.

The state law does provide for the settlement agents’ failure by setting up a system for taxpayers to get their money back, said Gov. Tim Kaine’s spokesman, Gordon Hickey, citing the state’s unclaimed property division, where property sellers can apply for the refunds.

“That is a more-involved process,” said Gary Clemens, the clerk of circuit court for Loudoun County. “It’s probably not the most convenient approach for the taxpayer.”

While dozens of settlement agents are working to arrange the refunds, other companies have been hammered by the credit market collapse, said Paul Sawtell, president of Dominion Title in Great Falls and secretary of the Virginia Land Title Association.

Settlement agents who developed niches as the exclusive settlement agents for major lenders that have gone out of business have been particularly hard hit, he said.

“There are a lot that have closed their doors recently,” Sawtell said. “Nothing is coming in so they can’t pay the rent.”

dgenz@dcexaminer.com