What If Your Taxes Aren’t Up To Date On A Short Sale?
Dear visitor 789738098. I just saw that you had posted a question in my online chat and I was away from my keyboard so I wasn’t able to answer you, but I’ll be happy to address this question, as it’s a common concern.
Property taxes always take priority over any other liens. When you took out your loan to purchase the home, most likely your lender set up an impound account to hold a portion of your monthly payment to ensure that your taxes were paid on time. The lender will typically pay that bill for you out of the impound account rather than letting you be responsible for the payment. Why? Because property tax liens are a priority, and if you don’t pay them, whomever does pay them, be it the state, or an investor who has purchased a tax lien, can foreclose on the property. Lenders would be crazy to let you get behind on a few thousand dollars per year to risk losing what you owe them, which is typically hundreds of thousands of dollars.
If you have fallen behind on your mortgage payments, that also means that your impound account isn’t growing either, so when tax time comes, the lender doesn’t have your funds with which to pay the bill. But, knowing that a tax lien could cost them a fortune, they will still pay the tax bill to keep that from happening. You still owe it, unless you negotiate it away through a short sale.
In order for any property to change hands, title must be clear of all clouds. Tax liens are clouds on title. If your lender approves a short sale, that approval will be based on a HUD-1 that includes clearing up your property tax bill. There’s no way around it. The bill must be paid, and if you don’t have the money, the lender will have to pay it. They don’t have a choice. They’ll either pay it through the closing of a short payoff, or they’ll pay it when they sell the property after you lose it. The latter simply costs them more money in the long run (which is why short sales are win win for everyone anyway.)
So, if your taxes aren’t caught up when you bring an offer to the bank, rest assured the net payoff will take into account the past due taxes. In fact, in many cases, during negotiations, the bank pays the most recent tax bill which in affect changes the numbers on the HUD-1 in your favor.