A home in foreclosure is a potential hornet's nest, especially when you're looking at unpaid bills. While a foreclosure action will kill the mortgage debt, back and current property taxes survive. The local government is entitled to tax payment regardless of what happens with any mortgages. Who is responsible for taxes depends on where the home is in foreclosure – still in court or auctioned off to a new owner.
The house's position in the foreclosure process ultimately determines who pays the taxes. Depending on the situation, the original borrower, the lender or the new owner may end up paying.
The Borrower's Responsibility
The owner is supposed to pay property taxes even though he's about to lose his home at the end of the foreclosure, through a public auction. Until someone else becomes the home's owner, the owner gets the bill for taxes.
Whether the owner pays the taxes is another thing entirely. Usually, since the owner can't pay the mortgage, he doesn't pay the taxes either. If the lender fronted the tax money during the foreclosure proceedings to protect its investment, the home might be current on taxes.
The Lender's Responsibility
If the home is in foreclosure but hasn't been sold at the auction yet, the lender might pay the taxes. The lender wants to sell the home to get money back, but if the government takes the home for back property taxes first, the lender is out of luck.
Sometimes, no one buys the home at auction, so the lender gets stuck with it. The lender pays the taxes because it's the new owner in that case. One of the reasons lenders don't want to be homeowners is the cost of owning a home, including the property taxes.
The New Owner's Responsibility
The person who buys the foreclosed home pays the property taxes if he bought it at auction. If the home sells at auction, the lender never becomes the owner and won't foot the tax bill. Part of the buyer's deal with the lender is paying any taxes, which is really part of buying the house "as-is." If the buyer gets the home from the lender because it didn't sell at auction, the taxes might be paid, since the lender was the owner for a while.
Warning About Property Taxes
Property taxes stick to the house and not the owner. So, if you're looking to buy a home in foreclosure, remember the taxes don't disappear just because the home's got a new owner.
All owed back taxes, current taxes and penalties become your problem if you buy a foreclosed house. If you don't pay the taxes, you could lose the home to the local government that's owed the money. Check with the tax collector before you bid at a foreclosure auction so you don't end up with a very unpleasant surprise.
- Renting an Underwater House
- Can I Buy a Foreclosed House for Less Than They Ask?
- Buying & Fixing Up a Foreclosed House
- When Is a Home Loan Forgiven?
- Tax Appraisals vs. Real Estate Appraisals
- Penalties of Non-Payment of Property Tax
- Can I Put a Home in Trust if I Owe Taxes on It?
- Am I Liable for a Previous Owner's Taxes?