Delinquent property taxes are a debt payable by the homeowner to the local government tax authority. They attach to a home, not a person. This makes a new title owner responsible for his predecessor's debt. A home buyer who fails to investigate the seller's property tax status could pay a harsh penalty for his neglect -- including the loss of his new home.
Just about every homeowner must pay property taxes in the United States. Local governments levy them at a rate assessed by reference to the market value of the subject property. The tax money funds valuable public services, such as police and fire services, roads, schools and local government salaries. If a homeowner fails to pay his annual tax bill, the government agency applies an escalating scale of penalties.
Late payment initially earns penalties and interest at the county interest rate. If the homeowner fails to settle the debt, the government agency can put a lien on the property for unpaid taxes. Lien holders can foreclose the property if the tax remains delinquent, even if homeowner's predecessor in title accrued the delinquency. Some local government agencies begin foreclosure proceedings as little as two years after the debt first becomes delinquent.
Tax liens and debts are a matter of public record and appear on a home buyer's title report. The home buyer typically can insist that the seller pay the debt and remove the lien before closing, and a properly drawn contract contingency allows the buyer to walk away from the transaction if the seller cannot deliver clear title. The parties can negotiate responsibility for the payment of delinquent property taxes to ensure that the property is delivered with clean title. The HUD-1 settlement statement will show any apportionment.
Old tax debts and liens can slip through the net. Title insurance is the best way for a buyer to protect himself against unpaid taxes. This insurance product pays for the loss a homeowner and his lender might suffer should liens on the title come to light. Most mortgage lenders require their borrowers to take out title insurance as a condition of the loan. Buyers should also insist that the real estate is conveyed by warranty deed, which contains a warranty that the seller's title is free from any lien and encumbrance. A buyer who subsequently discovers a tax lien or debt attached to his home can sue the seller under the transfer warranty for the consequences of the unpaid tax bill.
- Stockbyte/Stockbyte/Getty Images