Austin Texas – We recently received a question from Paul. Here is Paul’s Question.
“I am thinking about doing a short sale, but I am way behind on my property taxes. Will I still have to pay my taxes at closing if I short sale my home?
Here is the answer to Paul’s Question: No. In almost all cases your lender will pay those property taxes for you at closing. Property taxes are a first priority lien on a property.
That means that if a property is foreclosed upon, then they still have to be paid. They don’t go away for any reason (meaning they become your lender’s problem after they foreclose on you).
This is also why most lenders want to charge you monthly and then pay the property taxes themselves via escrow accounts. They know that the taxes are a big bill that only comes once a year.
Not everyone can afford that big bill. Because your lender knows they will still have to pay the property taxes after a foreclosure, they are also willing to pay them during a short sale too.
A foreclosure is a liquidation of the property to simply get what they can and move on. A short sale has been proven to net lenders more money than a foreclosure (that is why lenders prefer to short sale versus foreclose).
So if you have quit paying mortgage and your lender is looking at liquidating the property, they would rather net more money via a short sale and avoid foreclosing on you if possible. That is why they are willing to pick up the tax bill at closing.
Every short sale I have closed has resulted in the lender paying the property taxes that were owed. In some short sales I have closed, I have seen lenders pay 2 to 3 years of back property taxes at closing.
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