Tag Archives: property taxes

Do I Still Owe Overdue Property Taxes After Foreclosure?

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Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon:

I live in California and have a question about foreclosure and property taxes.

My house is in foreclosure. I have just one mortgage, and plan to walk away before the end of this month. I want to be out before the foreclosure sale takes place. The Notice of Default was recorded on September 19, 2012.

By my count, I received via regular mail, 12 copies of the exact same Notice of Default and Election To Sell from my lender. The same day, I received 12 certified copies of the exact same letter. In all, 24 notices mailed separately, and each one is identical. Should I be scared?

I’m also really worried about the several years of property taxes I owed.  On the first page of the Notice of Default is a sentence that indicates I am responsible for the taxes.   I did a Chapter 7 and got a discharge earlier this year.  But I am terribly worried I’ll still have to pay the property taxes after the foreclosure sale.

Celia

Dear Celia:

I’ll take each part of your question separately. Here we go.

The Property Tax Issue

If you plan to leave the house, and don’t want to reinstate the loan, you don’t have to pay the property taxes.  Here’s why.

Under California law, a foreclosure sale can be held as soon as 111 days after the date that the Notice of Default (NOD) was recorded. The NOD tells you that you have 90 days to get current  on your mortgage. If you don’t, the lender may cause a Notice of Trustee’s Sale, (NOS) to be recorded after the NOD has expired. The NOS may set a  foreclosure sale date no sooner than 20 days after publication of the NOS. Hence, it all adds up to a minimum of 111 days. (You can learn more about foreclosure timelines here.)

If you are completely out by the end of this month, you will be fine.

You Must Pay Property Taxes If You Want to Reinstate the Loan

Even though the NOD may have expired, you still have a legal right to reinstate your loan. The law gives you additional time to reinstate your loan by paying all sums due, up until the fifth business day prior to any foreclosure sale date.

Reinstatement, as defined in the NOD, includes everything you owed up to the date the NOD was prepared, plus everything that has come due afterwards. Here is where the property tax issue enters the picture.

Your mortgage requires you to pay the property taxes. Failure to pay the taxes is a loan default, because you were required to pay them as a condition of holding ownership to the property. A property tax default justifies commencement of a foreclosure even if your normal monthly payments are current. Here’s why that is.

Under California law, property taxes constitute a priority lien on real property. If they are not paid, the state gets an automatic tax lien against your property for the amount due. That tax lien jumps over the heads of all mortgages, and takes priority.

The thing confusing you is the statement on the NOD saying that you have to pay the taxes. That is true, but only if  you are going to reinstate the loan. If you are not reinstating, don’t pay the taxes.

Your lender would love to have you pay the taxes, but you don’t have to. If you don’t pay, they have to pay the taxes after the foreclosure sale, and they can’t collect it from you.

The 24 Notices of Default 

You received a total of 24 separate foreclosure notices. This is nothing to be frightened of. One copy would have sufficed, but multiple copies are good. The Post Office needs the revenue.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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Why Did My Mortgage Lender Pay My Delinquent Property Taxes?

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon:

I own a home and am current on my mortgage. I recently fell behind on my property taxes. My lender paid the taxes and is now billing me for them. Why would the bank pay my taxes?  And what happens if I don’t reimburse the lender for the tax payments?

Dear Stan:

If you don’t pay your property taxes, the bank will advance money to pay the property taxes, then turn around and bill you for that cost. If you don’t reimburse the bank for the taxes you owe, your lender can foreclose on your home.

Here’s why this happens.

The Lender Wants to Protect Its Interest in the Property

If you have a mortgage on your home or other real estate, the lender has a security interest in your home. If you default on the mortgage, the lender can take the home back to get reimbursed for the mortgage payments you owe. This is called foreclosure. Not surprisingly, the lender wants to protect its interest in your property, and make sure nothing happens that will hurt its ability to foreclose or to get reimbursed for mortgage payments.

For this reason, your lender will require you to maintain fire insurance and other types of homeowner’s insurance. In addition to keeping the property insured, the lender will also require that you stay current on the property taxes (this will be part of your mortgage contract). Here’s why the lender cares about your property taxes being current.

Why Does the Lender Care About Property Taxes?

Under the California State Constitution, property taxes become a priority lien on the property as soon as the county tax assessor issues an assessment notice for the tax. The “priority part” means that the property tax lien jumps ahead of the mortgage.

If the taxes remain unpaid for a long enough time (usually five years), then the county has a tax sale of the property. The tax sale of the property is not subject to the other liens against the property. This means the buyer at the tax sale takes title free and clear of any other encumbrance, not even the mortgage! Hence, banks are scared to death of letting property be sold at a tax sale because it wipes out their mortgage.

A mortgage lender is in for a horrible loss if they let that happen. Somebody might walk away with the property as the successful bidder at a tax sale, paying far less than market value, and the mortgage lender might get absolute nothing!

How the Lender Protects Itself

Lenders can protect themselves from losing their collateral at a tax sale by monitoring the tax delinquency status on every parcel they have loaned against. If the borrower fails to pay the property tax, the lender will advance the money to pay the taxes. That removes any danger of a potential tax sale, and then the lender can bill the owner for the taxes that the lender has paid.

Paying the taxes also allows a lender to take their sweet time in foreclosing on the borrower. For example, a bank won’t rush through a foreclosure if it already has too many repossessed condos in their inventory.

If you have delinquent taxes, you can work with the IRS to structure a payment plan. Learn more in our Back Taxes & Tax Debt area.

Guest blogger Leon Bayer practices bankruptcy law in Los Angeles, California.  He is a partner at Bayer, Wishman & Leotta.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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