Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
When someone owes multiple years of property taxes, and goes through a bankruptcy, how is that debt handled? When I view the tax records of a property, it will show "bankruptcy" as a note but then show all the years of property taxes owed. Does that mean the owner is responsible for them or not?
Also, a follow up question -- if the city assessor indicates that they owe a few years back taxes, does that mean that they either aren't paying the mortgage (and the mortgage company isn't paying the taxes) or they don't have a mortgage and aren't paying the taxes?
This would be a situation where it shows the property was sold in 2000 for example and the taxes are delinquent from 2010 on.
Like Wayne says, the property taxes (and past due fees and interest) stay attached to the property. The reason you are seeing a BK notation is because the tax collector is considered a creditor is and notified of the BK filing. It can stall a tax foreclosure until the property is released by the BK trustee or until the BK is discharged. If the property could be sold and you wanted to buy it, the taxes would typically come out of the seller's proceeds at closing. But that's negotiable. I'm writing an offer today where the seller will receive a net number at closing and I'm paying all closing costs, including all past due taxes and fees.
Dawn: I don't think there is anyway sure fire way to correlate past due taxes with delinquent mortgages. Lots of borrowers don't have escrowed taxes with their lender, so the lender wouldn't be getting the tax bill That being said, in the past few years I have worked some deals with delinquent taxes where the sellers haven't made a mortgage payment in years and there is no recorded default notice and no foreclosure action. So, delinquent taxes could be a defaulted mortgage lead.
The reason why I ask is questioning if someone doesn't show bankruptcy, and has several years of back taxes, and it shows a QC deed, then perhaps that means that they do not have a mortgage and are just not paying taxes? (e.g. they were given the house or left it by parents?)
In my area, most owners who are delinquent on their property taxes do have a mortgage. Like 90% of tax defaulted property. So tax delinquency is not a good indicator of those that own free and clear. Quit claims are used for all types of transfers regardless of previous encumbrances, so QCs don't necessarily indicate a free and clear property.
... The reason you are seeing a BK notation is because the tax collector is considered a creditor is and notified of the BK filing. It can stall a tax foreclosure until the property is released by the BK trustee or until the BK is discharged. ...
Good info there. Bankruptcy has what is known as an "automatic stay" including any attempts by a creditor to collect on debts owed by the debtor. In this case, the taxing authority cannot attempt to collect until the BK is either discharged or dismissed, or a relief from stay is granted. So that notation in the file is to tell the collection dept to leave the debtor alone for now.
... The reason you are seeing a BK notation is because the tax collector is considered a creditor is and notified of the BK filing. It can stall a tax foreclosure until the property is released by the BK trustee or until the BK is discharged. ...
Good info there. Bankruptcy has what is known as an "automatic stay" including any attempts by a creditor to collect on debts owed by the debtor. In this case, the taxing authority cannot attempt to collect until the BK is either discharged or dismissed, or a relief from stay is granted. So that notation in the file is to tell the collection dept to leave the debtor alone for now.
I'm not sure the BK filing matters as much in CA as other places when it comes to property taxes. There is no collection activity, just fees and interest when you don't pay. Taxes have to be past due for five years before there is "power to sell" status. And even then it can take a few years before the tax collector offers it for sale. I'm guessing there is more benefit in places where sales for defaulted taxes happen much earlier. I have seen BK stall tax sale of properties with very serious and huge delinquencies, but usually involving commercial props.