Worrying about selling a house with outstanding property taxes? Managing these claims can be burdensome, but it doesn’t have to be. Unresolved property taxes will need to be settled in order for the sale to happen, either by paying them in full beforehand, or these funds will be subtracted from the sale proceeds to pay off the debt. In cases where the sale proceeds will not be sufficient to pay off the mortgage and taxes, more work may need to be done. According to the National Association of Realtors (NAR), issues regarding titles and deeds stalled 13% of contracts and resulted in termination for 5% of contracts. This emphasizes how important property tax issues can be. Keep reading to find out if you can sell your houses with unpaid property taxes or not!
Understanding Property Taxes and Liens
Liens and unpaid property taxes can delay or block a home sale. To resolve these issues, clear them before closing or pay through escrow from the proceeds of the sale.
What Happens When You Owe Property Taxes?
Property taxes are usually billed twice a year, in the summer and winter. You will need to settle the necessary amount if you have unpaid property taxes before you can sell your home. Usually, all the taxes will be paid, and the amount will be prorated to the closing date. A clean slate on the property taxes will be outstanding for the buyer, and if taxes are overdue the city might put a lien on your property in order to retrieve the owed amounts.
Consequences of a Lien on Your Property
A lien tends to complicate selling a house since it is a legal claim on an individual’s property due to overdue taxes. They will put a stop until the lien is taken care of for you to move to the closing stages of selling your property. The individual selling the home will end up paying the taxes with the money earned from the home sale. When the sale proceeds don’t cover the mortgage and tax liabilities, the situation becomes complicated because additional steps need to be taken to meet these obligations.
Prorating Taxes at the Time of Sale
To prorate means to spread out the tax amount owed as of the sale date, so that the seller only pays for the time they owned the property. This method of prorating simplifies tax allocation equity between the seller and buyer. From the seller’s perspective, you have to pay your taxes through to the day of closing, which means you are already paying taxes. Prorating allows the buyer to control their tax and accrue responsibilities without having to deal with the seller’s unresolved taxes.
How to Manage Unpaid Property Taxes Before Selling
After coming to terms with the impact of outstanding liens and property taxes, one must try and come up with ways to deal with those financial responsibilities before selling the house. Here are some options that you might consider:
Paying Off Taxes with Savings
If you have the financial capability, paying property taxes from your savings will make selling the house easier. You can save more in the long run if you pay off the owed amount promptly because, otherwise, accrued interest and penalties will add up. After clearing the property taxes, you can appeal to have the lien removed, thus ensuring a smooth home selling process.
Using Home Sale Proceeds to Settle Debts
One of the other options available would be to take the tax debt and settle it with proceeds coming from the sale of the house. At closing, part of the sale proceeds will first go to pay off the mortgage and then subsequently pay off the tax lien. This can only happen if the total proceeds of the sale are sufficient to clear all debts. In the event that this does not happen, you will have to pay off the deficit before the sale is completed which may require additional funds.
Obtaining a Lien Release for Sale
In some cases, the tax authority will issue what is known as a ‘certificate of discharge’ which will remove a lien on the property title. This document does not forgive the debt; it simply changes the lien from the property to the seller. This option also allows for the sale to proceed. After the sale, the proceeds from the sale can then be used to settle their tax debt. The downside to this option is that it can delay the sale and make the house less appealing to potential buyers.
Selling Strategies for Homes with Tax Liens
Selling a house with tax liens and unpaid property taxes can seem like a challenge to many people. Though it requires a certain amount of knowledge and effort, it is achievable. Let’s explain in detail.
Finding the Right Buyer
If you owe unpaid taxes, consider working with a buyer who specializes in that niche. A traditional home buyer may want to purchase the property, but modest sums attached due to liens will make things complicated. Rather, target buyers like real estate investors who know how to navigate tax liens. Tax liens have the potential to be profitable and real estate investors understand this. On the other hand, cash buyers might overlook liens if the property has a significant value.
Benefits of Selling to a Real Estate Investor
Selling your property directly to an investor has many advantages that come with a tax lien. Some of them include:
- Getting instant cash: Most real estate investors are willing to close deals at short notices, with cash offers settling the due amount quickly. This enables you to take care of your financial obligations without delay.
- Flexibility: These example buyers can provide a flexible plan which is highly productive if you’re working under tight deadlines.
- No Repairs Needed: Unlike most buyers, investors typically buy properties “as is.” This implies you will not have to spend time or resources towards repairs or improvements prior to the sale.
- Avoid Traditional Sale Hassles: Selling to an investor can completely eliminate the need for Realtors, protracted negotiations, and MLS listings.
Navigating a Traditional Sale with Tax Liens
If you decide to go with a conventional sale, tax liens become an obstacle that requires strategized handling well in advance. The lien must be cleared before closing by either paying the owed taxes from the sale proceeds or using personal funds. In certain instances, a lien may be released temporarily, allowing the sale to happen; this debt, however, is passed to the seller. While this is advantageous, these mechanisms do tend to slow the timeline and discourage buyers. Closing the deal with these restrictions guarantees the seller a title free of previous tax claims which is critical to completing the transaction.
Conclusion
Strategically planning to sell a house quickly with unpaid property taxes requires informed decisions. Whether it’s selling to a real estate investor or going the traditional route, each option provides a way to alleviate your property tax burden. Understanding your financial goals, timelines, and urgency will aid in deciding which approach to take.
Addressing a tax lien promptly can help lessen the financial burden and allow for a peaceful transition into the next venture. If you are battling unpaid taxes and are unsure of which direction to take, speaking to real estate professionals that deal with such matters can help streamline the process, ensuring a smoother sales process.
FAQs
Can I pay the owed taxes after the sale?
In some cases, a lien may be released allowing you to sell the home and pay the debt from sale proceeds later. This is possible through a certificate of discharge but may prolong the closing process, which can cause buyers to back out.
What happens if the sale does not cover my mortgage and owed taxes?
If the sale of your home does not cover the mortgage and the outstanding property tax debt, you may not be able to proceed with the sale unless you come up with the additional amount needed to clear the balance. In such situations, you may also need to look at obtaining a lien release or selling to a real estate investor.
What should I do if I’m unsure about my options for selling with unpaid taxes?
If you are having trouble figuring out the best strategy regarding selling your house, especially with outstanding property taxes, reach out to a real estate advisor or contact a selling company that specializes in such properties. They will be able to assist you in formulating a plan that is suitable for your finances.
