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Foreclosed Home has a 2007 tax default of $25,000

I'm in escrow on a foreclosed home owned by a bank. I found on the Los Angeles County website that there is a 2007 tax default of $25,000.  Will I be liable for this??
 The website also shows that there is a tax payment of $3000 due 12-10-10.  If I close after 12-10-10 who pays for that tax payment?
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November 24 2010 - Northridge
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Answers (10)

Paul,
Did the lisitng agent include the property taxes in arrears in the HUD1? 
As the buyer you wouldn't pay the property taxes.
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November 29 2010
Hi Paul,

I know you need help on this one. On a foreclosed home all costs and outstanding liabilities are on paper somewhere.  That somewhere is your title company.  Call the title company and make sure there is going to be enough in the Bank Addendum that you signed to cover all these tax payments and that since this is a foreclosure you would like them to run a last minute title search for garbage liens, water liens, tax liens, contractor liens.  And the painful answer on your property tax default, if it does not get covered under the sale by omission then you may very well be tried to be held accountable to pay that down the line.  Work with your title company right up to close of escrow.

Angela White
Alain Pinel Realtors Saratoga
awhite@apr.com
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November 29 2010
If the property was "foreclosed" by way of a trustee sale the lender is responsible for the 2007 taxes as they were a primary lien to the lender's loan to the previous buyer.  This needs to be cleared up in escrow, but you should not be responsible for them.  As for the current taxes it doesn't mater when you close as escrow will (depending on your purchase contract) normally pro-rate the taxes.
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November 29 2010
Tax liability is always a huge issue and something that should be taken care of before the close of escrow. Make sure to talk to your title officer as they will make sure what you need to do. Good Luck!
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November 24 2010
Profile picture for Pasadenan
So, the bigger question is, if escrow closes September 1, how does the seller pay the 2 months of accrued property taxes since the tax bill hadn't arrived yet and the inflation factors are not exactly known for figuring the amount from the prior year bill?

It still is supposed to be handled in Escrow, but you may have to check with the tax assessor or with the escrow office to be sure how it is done.

You may end up paying the full year, and then being refunded the 2 months later; and the seller may be receiving a supplemental bill after they already sold the property.  Escrow should at least withhold the 2 months payment as estimated, but it may not be estimated right.  They may withhold a bit extra to be on the safe side, in which case both the buyer and seller may be getting refunds.

In any case, you shouldn't need to worry about it; you just pay what they say is due.

For some loans, the property taxes are Escrowed monthly, in which case your loan officer can fill you in on the details.
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November 24 2010
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To clear up a minor misconception, the tax bill that is sent in October, due in November and February is for July 1 of the same year, through June 30 of the following year, so the payment that would be "late" after 12/10/10 is for July 1, 2010 through December 31, 2010, so, if you closed 12/10/10; the prior owner should have paid the first installment, and your share is 20/365 of twice the first installment, which would be paid out of escrow, and the seller is refunded the same amount.

The payment due 2/1/2011 is for January 1 through June 30, 2011, so you would be paying that after you already were in the property for awhile.  It is "late" with additional penalties if not paid by 4/10/2011.  That payment does not take into account the change in value yet, so you still have to wait until about august or September for the adjusted amount due.

Don't forget that if you "itemize" deductions on your federal and state income tax forms, that the property taxes you put on your schedule "A" is the amount you actually paid in the calender year, so if you paid the full amount in 2010, you use that number, but if you did the 2 installments, you only use the first payment.  Obviously, if you are inconsistent, you might have 3 payments worth on your schedule A itemization one year and only 1 payment worth on your schedule A itemization in a different year.  Don't forget the supplemental the year you pay that.
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November 24 2010
Profile picture for Pasadenan
Also remember, that 12/10/10 is not the date the 1st installment is due.  It is due 11/1/10.  The 12/10/10 date is the "late" date, after which a penalty is assessed.

For a sample tax bill, see:
annual bill

For a sample of a supplemental tax bill, see:
Supplemental bill
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November 24 2010
Profile picture for wetdawgs
The taxes of 2007 should be dealt with before you can close, please talk with your loan officer and agent.

The taxes due 12-10-10:   Taxes are paid proportionately, so for 2010 taxes if youown it 20 days out of 2010, you will pay 20/365 of the 2010 taxes (usually covered at closing). 
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November 24 2010
Profile picture for Pasadenan
If it is an REO, typically the liens have to be cleared up by the owner (bank) prior to sale for a clean title report.  If it was at auction, it would be different, you would be responsible as the buyer for all existing liens.

For taxes, you always pay property taxes from your escrow account.  It is pro-rated based on when the property actually changed ownership.  Some tax payment is "prepay", and some after the fact.  There are some good threads on this subject on Zillow already that you can find with the "keywords" box search above.  Or you can go to the LACounty tax assessor website for more information.  assessor.lacounty.gov

As for whether the bank paid the first installment for this year or not, you will need to confirm that with escrow.

Remember also, that the amount on the tax bill due 12/10/10 is not the correct amount as re-assessment is triggered with ownership change, and the tax is 1% of the sale value plus all additional assessments per proposition-13, (increasing up to 2% annually plus 2/3rds voter approved additional assessments).  Thus in about 6 to 8 months you would either get a refund on excess taxes paid, or you will get an additional bill for the difference.
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November 24 2010
Paul, the contract you signed to purchase the home should indicate who is responsible for paying those taxes.  Your lender (the one giving you the loan to purchase the home) won't let you close escrow without those taxes being paid but you might as well find out right away if the seller/bank is going to pay them.
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November 24 2010
 
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