Property behind on taxes- what would make it a good deal

3 Replies

After looking into a property and running the numbers, I noticed that it was behind on taxes by a couple years, and I know that I can negotiate the purchase price based on this. Would you simply subtract the tax delinquent amount from the purchase price, or would you build in more of a "buffer zone" to account for other expenses and/or tax increases in the coming years?

Interesting question Greg. A few questions come to mind before I can answer this one.  How close are they to losing the property to a tax sale?  If a taxing entity is foreclosing, they will likely wipe out all junior liens, so it is possible that a bank many defend their position and pay off the back taxes at an auction.   The important part of this question, is how much pressure is on the sellers to make a deal before they lose their house and their credit is destroyed.  The closer we are to that date, the more leverage you have in negotiation.  

The next thing I want to know is this a rental or the family residence?  If this is just a rental, then the owners have less pressure to try and hold onto the property. A landlord facing foreclosure might just want to walk away. 

With a bit more info, my question to the seller would be "what is the least you will accept for this property?"  

That is where the negotiation is going to start. 

"Would you simply subtract the tax delinquent amount from the purchase price, or would you build in more of a "buffer zone" to account for other expenses and/or tax increases in the coming years?"

If they are not yet at the lien/default status (in OR that's like 3 years of non-payment), think I'd figure a price that works (assuming all taxes are current) and then make sure you get clean title at close.  Title can sort out what is due and it comes out of seller proceeds.

If you're at the lis pendens state and close to a tax sale, find out the amount and then take that much out of your price.  Make sure title gets you clean title again.

I guess you can wait for a tax sale, but you may have to wait (check with your state/county) for redemption by the owner.

Hi @Greg Koszkul

The answers above from @Josh Caldwell  & @Steve Morris are solid. 

Will add by noting any standard contract to purchase a property will contain a clause saying prior liens (mostly mortgages and property taxes but also utilities and others) must be satisfied by the seller prior to close. In other words, don´t rush into promising the seller a "net" amount at closing until you have all the info on what needs to be deducted prior to close.

In terms of estimating future taxes, most county appraiser websites have links to a tax estimator where you can input a sales price, uncheck the homestead box, put exemptions to zero and then you´ll get a rough number on what you´ll have to pay next year.