Real Estate: June 2013 Archives

my prorated property taxes came were paid at closing but now I'm getting a delinquent tax bill

You mean they were supposed to be paid at closing.

There are two major possibilities:

1) They were not, in fact, paid

2) They were paid, but were miscredited, or they were properly credited, but your county goofed anyway.

In the first case, the county did not get the money they were supposed to, which means you still owe it. There are any number of explanations for why this happened. Some of them are innocent, some are criminal. But you owe the county money that they don't have, in which case you need to pay it, and precisely what happened to the money that was supposed to pay those taxes originally is not the county's problem - it's between you and your escrow provider.

Investigate this promptly. Look at your HUD 1 form. Lines 106 and 107 are for buyers reimbursing sellers for taxes. Lines 210 and 211 are for tax liabilities incurred but not yet paid. Line 1004 is taxes and assessment reserves, and I've also seen extra lines in section 900 used. If it is listed as paid, contact your escrow company to determine if it was paid in truth. Sometimes the escrow company messes up. If the escrow company tells you that taxes were paid, double check with the county. Sometimes the payment was misapplied to the wrong parcel, sometimes it was correctly credited, but due to the fact that government bureaucrats get paid the same whether the job is correctly done or not, they just aren't correct or up to date. Sometimes time will repair the problem, but it's not something to count on. Get a statement from the escrow officer that it was paid, receipt number X or in conjunction with escrow number so and so, thus and such date, in the amount of $X. In some cases, you may have to get a copy of the canceled check or wire transfer to prove that it was paid to the county's satisfaction.

Do not allow this problem to sit. It will only get worse, and you could find yourself facing tax liens, tax foreclosure, or a situation where the lender then pays the taxes to protect their interest, and follows up by presenting a bill to you. They'll charge you interest for any amount they pay in defense of your interests and theirs, plus a fee for the trouble they were put to. I've never had it happen to me or a client, so I don't know how high the interest is, but it's not cheap.

Property tax liens take first priority over basically everything. It takes a while - potentially years in California - before they can condemn the property for unpaid property taxes, but once they do start the process, all of the protections you have against lender foreclosure are much weaker against property tax foreclosures. Lenders are therefore understandably nervous about delinquent property taxes, and they typically want to take action pretty quickly. Don't let it get to that stage. If you have to, you're better off paying them a second time and applying for a refund than letting it get to the point where the lender feels obliged to step in to protect their interests.

Caveat Emptor

Original here