How Should Unpaid Property Taxes Be Handled at Closing

By
Real Estate Agent with Keller Williams Capital Properties DC AB15253

 

Will You Have to Pay Taxes When You Buy a House?

When you buy a home, in addition to the down payment and closing costs, you probably will  see an item on your closing documents for taxes.  Exactly how much of a bill for taxes will depend on your contract and the date of your closing.

Prorated Property Taxes

Houses are sold Monday through Friday (and sometimes on weekends) throughout the year.  However, property taxes are billed on a fiscal year schedule, which may or may not coincide with the calendar year. In some jurisdictions, taxes are paid in installments.   For instance, in Montgomery County MD, annual tax bills and the first installment of semi-annual bills are due on or before September 30th and become delinquent on October 1st. The second semi-annual installment is due December 31st and becomes delinquent January 1st. 

Depending on when you close, the seller may have already paid taxes for a future portion of the year when he or she will no longer own the house, or the seller may not have paid all the taxes due through the time when he or she will move out. That issue needs to be addressed at closing.

If you purchase a house and the seller has already paid taxes for a period that extends beyond the closing date, he or she has paid for time when you’ll own the house. The contracts used here in the DC Metro area (GCAAR, MAR and NVAR) require you to reimburse the seller for the portion of the taxes which the seller has already paid and cover the time when you’ll own the house.

If the seller hasn’t yet received or paid the tax bill that covers a portion of the year when the seller lived in the house, the title company will deduct that prorated share of the tax bill from the seller's net proceeds to pay the tax bill that is due.  The seller must convey clear title to the buyer and unpaid taxes would result in a lien on the property and an inability to get title insurance.

Unpaid Back Taxes

You protect yourself from becoming for unpaid back taxes by using a reputable Realtor, a legitimate title company and by obtaining a title insurance policy. Before you close on the house, the title company will research the title of the property and check to make sure that the seller is current on property taxes and determine whethere there are any outstanding liens on the property - such as one filed by the IRS for unpaid Federal taxes.  After the title company determines that there is clear title - i.e. there are no unpaid taxes and the seller has the right to sell the property,  the title company will provide you with a title commitment or title report saying that there is clear title. If you’re told that there are no taxes due, but you find out after closing that in fact there are, you’ll be able to file a claim against your title policy.

Understand the Tax Situation Before Closing

Homebuyers are often confronted with unanticipated expenses. Before you close on a house, make sure you know if there are any outstanding taxes and how those bills will be handled. Discuss the matter with your real estate agent and work with a reputable title insurance company to get complete and up-to-date information. 

This should not be a big deal as long as you are working with professionals committed to providing you with excellent and ethical service.   If you have any questions about how the property taxes will be addressed at closing or you want to make sure that you are working with a professional Realtor committed to your successful outcome , please give the Lise Howe Group - the Bethesda Condo Queen - a call at 240-401-5577.  We are also delighted to refer you to several top notch and very professional title companies here in the DC metro area.

 

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tax liens
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Rainmaker
5,126,192
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
Marketing Agent for The Todaro Team

Good morning, Lise Howe this is a prime example of why potential buyers and sellers would be wise to call you when they're ready to participate in the real estate market.... your legal background is there for them .... proper guidance is important and avoids unwanted surprises at closing.... you wear a legal hat as well as a real estate hat.... very, very few agents have that professional background.... you're an attorney and a real estate agent.... good offering for all.

Oct 23, 2019 06:57 AM #1
Rainmaker
1,720,311
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Barbara Todaro - thank you so much for your kind words.  You have inspired me in the last few weeks to talk more about the benefits of my legal background in first time client meetings.

Oct 23, 2019 07:01 AM #2
Rainmaker
5,126,192
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
Marketing Agent for The Todaro Team

Lise Howe that should be a major part of your marketing and branding..... it's not like taking a fast track course!!!  every buyer and/or seller should have legal representation....real estate agents cannot play attorney....it's illegal.... you can... they need you rather than a battery of people to hire....you're built in....

Oct 23, 2019 07:04 AM #3
Rainmaker
1,720,311
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Barbara Todaro - I send you many hugs - I hope you are well and enjoying the fall weather!

Oct 23, 2019 07:08 AM #4
Rainer
159,050
Anne Corbin
Long and Foster - Lake Anna - Spotsylvania, VA
Serving Lake Anna & Central Virginia

That is why title searches are so important. A buyer doesn't need to inherit those back taxes!!

Oct 23, 2019 07:13 AM #5
Rainmaker
1,720,311
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Anne Corbin - I completely agree - and yet it is scary how buyers sometimes go sailing into a home purchase with no clue and no protection

Oct 23, 2019 07:18 AM #6
Rainmaker
3,218,511
Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Hi Lise... great information for buyers. Our annual tax bills go out in August/September but are not due until the first week of January. So houses closing once tax bills go out always need some extra research to determine if the tax bill was paid already and how it should be handled for the closing. And sometimes they've been paid but the County hasn't yet reflected them as paid when a home closes... that's always fun to resolve!

Oct 23, 2019 08:09 AM #7
Rainmaker
2,652,837
Brian England
Arizona Focus Realty - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

Such a well put together blog post, knowing the amount of property taxes that one will have to pay when purchasing a home is very important to know.

Oct 23, 2019 11:21 AM #8
Rainmaker
1,996,806
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good afternoon Lise Howe - I would certainly want my attorney to check all of that including title insurance. 

Oct 23, 2019 01:24 PM #9
Ambassador
3,861,423
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Lise figuring out the taxes at closing is simple in CT except for 2 towns who pay property taxes in arrears so the Seller gives the Buyer a credit for property taxes at the closing.  The amount the Seller provides depends on the length of time since they were last paid.  But for the other 167 town who pay taxes in advance it is simple.  For majority of the town taxes are paid every 6 months so it is 8 months of taxes into escrow no matter what month they close in.  For the few town that pay once per year, it is 14 months into escrow.

Oct 23, 2019 05:40 PM #10
Ambassador
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Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Hi Lise- there are so many who don't really understand property taxes at closing and how they're handled, who pays what, etc. Listen to Barbara Todaro 

Oct 23, 2019 07:11 PM #11
Rainmaker
2,999,903
James Dray
Fathom Realty - Bentonville, AR
Exceptional Agents, Outstanding Results

Morning Lise.

That's why we rely on the title company to get it done.  Have a great day

Oct 24, 2019 01:40 AM #12
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Lise Howe

Assoc. Broker in DC, MD, VA and attorney in DC
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