Liability For Real Estate Taxes After Foreclosure

If you plan to walk away from a house and let your mortgage lender foreclose, do you continue to pay property taxes? This is a question often asked by homeowners who own property worth less than the mortgage balance. People are concerned that they will remain personally liable for unpaid property taxes after the bank foreclosure.

The general legal rule is that taxes on real property are assessed only against the property itself and not the owner. Taxes on personal property are the owner’s personal liability. Practically, if a property owner does not pay real estate taxes the government’s remedy is to put a lien on the property and sell the tax certificate at public auction. The purchaser of the tax certificate at the tax auction pays the unpaid property taxes to purchase the certificate so that there is no longer any liability owed to the government. If a mortgage company takes back the property at foreclosure sale its title is subject to real estate tax liability. When the mortgage lender subsequently sells the property the purchaser of the property must pay all outstanding tax liability in order to get clear title.

For these reasons, I do not think a homeowner is personally liable to pay real estate taxes, and other attorneys have expressed similar views. I recommend to clients that they do not pay real estate taxes once they make the decision to permit their lender to foreclose. A lender offering a deed in lieu of foreclosure could demand that all taxes be paid as part of the negotiation.

About the Author

Jon Alper is an expert in asset protection planning for individuals and small businesses.

Jon Alper

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