Quick Answer
Delinquent property taxes can create a lien against the property and may need to be paid before or through closing. Continued delinquency can bring additional penalties and interest, and in some cases can lead to tax sale or foreclosure proceedings depending on applicable law.
Property taxes are imposed by local governments, and when they go unpaid, the consequences can affect the property owner and anyone trying to buy or sell the property.
At Closing
When a property with delinquent taxes is sold, the closing process addresses the unpaid taxes. The title and escrow team determines:
- Taxes due: What amount is currently owed, including any delinquent installments
- Delinquent amounts: Unpaid taxes from prior periods
- Penalties and interest: Additional charges that have accrued on unpaid balances
- Current status: Has a tax lien already been filed, or has the property entered a tax sale process?
- Amount required: The total needed to bring the property current
Can Delinquent Taxes Be Paid From Sale Proceeds?
Yes, in most cases. When the seller's proceeds are sufficient, delinquent property taxes are paid at closing from those proceeds. The title company typically obtains a tax payoff or clearance certificate from the taxing authority. For more on how liens are paid at closing, see how liens are paid at closing.
CAN THIS STOP CLOSING?
In most cases, delinquent property taxes can be paid at closing and the transaction proceeds normally. However, if the property has advanced to a tax sale or foreclosure stage, additional steps may be required. Discuss the situation with your title company early.
FAQs
Can property taxes be prorated between buyer and seller?
Yes. Most purchase contracts provide for proration of property taxes, with the seller responsible for taxes up to the closing date and the buyer responsible from that point forward. The exact proration is calculated on the settlement statement.
What happens if property taxes are not paid for years?
In most states, the taxing authority may eventually sell the property at a tax sale or initiate tax foreclosure proceedings. These proceedings can extinguish other interests in the property, including mortgages. This is one reason property taxes often have priority over other liens.
Does tax delinquency affect the buyer?
Under a standard purchase contract, delinquent taxes are typically the seller's responsibility. However, if the taxes are not resolved at closing, the buyer could face issues. The title company ensures taxes are addressed before the new owner takes title.