Are Back Taxes Owed on Property After Purchase Your Responsibility?
When purchasing a property, it's common to find that it has back taxes owed. Understanding your responsibilities in this scenario is crucial for a successful and trouble-free transaction. Let's delve into the details and address the key aspects of back taxes owed on a property after purchase.
How Back Taxes Are Handled at Closing
Typically, the resolution of back taxes is handled at the closing of the sale. A thorough title search will reveal any liens against the property. Past due taxes and any associated late fees or penalties will be identified and charged to the seller. Current-year taxes are generally split between the buyer and seller based on the date of closing. Liens are paid off and typically charged to the seller. New liens, if the buyer is financing the purchase, will come from the buyer.
What if No Escrow Process?
If the purchase does not go through the escrow process and the buyer does not discover any past due taxes, the buyer will be responsible for paying them. This highlights the importance of thorough due diligence and a property tax reconciliation before finalizing the sale. If no such measures are taken, it is the buyer's responsibility to pay the back taxes.
Responsibility When Taking Legal Possession
When a buyer takes legal possession of the property, it is usually with the assistance of a reputable title company. These companies ensure that any past due taxes are revealed and can be addressed. Typically, the funds to pay these back taxes will come from the proceeds of the sale and will be charged to the seller at closing.
New Owner's Responsibility Moving Forward
Once the deed is transferred, the new owner becomes responsible for any future property taxes. This means that any back taxes must be paid off before the ownership is transferred.
Common Pitfalls and Exceptions
It's important to note that if a buyer transfers ownership without addressing back taxes, they may find themselves still responsible for these taxes. For instance, if you paid back taxes to the seller, you essentially paid the seller's taxes, not your own. Any lien will still remain.
If a property goes to the county's tax auction, and a buyer wins the bid, they are close to ownership. However, they must then pay off the mortgage. This can be tricky as the loan company may not interact with the buyer and will likely foreclose on the new owner if there are any issues.
Due Diligence Before Purchase
To avoid such complications, potential buyers should perform a detailed property tax reconciliation and a comprehensive title search before finalizing the sale. This helps ensure that any outstanding taxes are identified and addressed properly, preventing future financial liabilities.
Understanding your responsibilities in relation to back taxes when purchasing a property is crucial. By taking the necessary steps to perform due diligence and address any outstanding back taxes, you can ensure a smoother and more secure real estate transaction.