Delinquent property taxes stay with the house. This means the title on your new house belongs to you, but there is a serious cloud over the property because of the tax issue. In the case of unpaid taxes, it's not just a cloud -- it's a thunderstorm. Tax authorities have the right to take your home and sell the property, if the taxes -- even those from a former owner -- remain unpaid.
State and local governments collect funds through various sources, including assessments put on your house. Most localities combine all of the various local taxes into one property tax bill. When homeowners fail to pay bills, the county or city takes legal actions to collect the tax payment. The ultimate recourse for the government agency is to attach -- put a lien on -- the property for the delinquent taxes.
Title companies research the chain of ownership of a property. Your new home typically undergoes a preliminary and final title search before your sale closes. Mortgage lenders require a title report listing all the former owners and a list of any loans and liens on your new house. Any unpaid items are called "clouds" over the title. These clouds must be resolved before your new house closes. If you paid for a report and weren't presented with the final title document, then you can take legal action against your lender, real estate agent, title or escrow officers, or attorney handling your home sale. If you did receive a copy of the report and failed to do anything about a cloud, you might be out of luck for any financial recourse.
The best way to protect yourself from an old tax lien on your property involves paying for a title insurance policy. The preliminary title research and official title report searches out any unpaid bills attached to your property, but it's not foolproof. Occasionally the lien fails to show up in a timely manner, and the title company doesn't discover it before your house closes. If a tax lien does appear, the insurance pays to cover your costs and fees. You pay for title insurance in one lump sum, and the fees are based on the price of your property. Your mortgage lender usually requires you to buy a title insurance policy as part of the property title package.
You have three choices to resolve the cloud over your house. You can let your title insurance solve the problem with your help. If you don't have title insurance, you can pay the former owner's unpaid taxes and hope to collect something from the former owner by suing in court for the unpaid tax bill. If the unpaid tax bill is significant, you might need to sell your house to pay the past due taxes or allow the government agency to take your house in payment for the taxes, if you don't have the cash to pay the tax bill.
- University of North Carolina School of Government: The Property Tax Lien
- CNN Money: Investors Target Property Tax Deadbeats
- Maricopa County Treasurer's Office: FAQ -- Regarding Tax Liens
- Orange County, California Treasurer - Tax Collector's Office: Property Auctions
- Buncombe County North Carolina County Services: Advertisements of Tax Liens
- Fidelity National Title: The Preliminary Title Report
- American Land Title Association: Consumer Information
- Realtor.com: What is Escrow?
- Georgia Department of Revenue: Where Do County Tax Dollars Go?
- Jupiterimages/Goodshoot/Getty Images
- Why Should a Title Search Be Done When Paying for the Home in Cash?
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- What Are Tax Lien Certificates?
- How to Finance a Property at Auction
- Can Liens Be Upheld on a Warranty Deed?
- What Happens if You Purchase a Home at a Tax Lien Sale & There Is a Mortgage Lien Owed?