Subject to purchase & delinquent taxes

9 Replies

has anyone ever purchased a home "subject to" that has a delinquent tax bill? Is there a way to incorporate that in the deal if you were willing to take over the payments for the tax bill?

There's always stress behind a seller willing to let you take over the deed and payments. Offer to split the tax deal,,, "or it's no deal". They may not have the funds.

You'll have to decide if its a good enough deal even if you have to put in and cover the delinquent taxes as a worst case.

A property may be sold subject to any lien or encumbrance by describing it in the deed of conveyance, a special warranty deed, unless state law prohibits transfer of title rights with outstand taxes due.

If that is the case, you can enter into an installment sale if that is allowed in your state where you obtain equitable title but not legal title until the contract is fulfilled, look at a contract for deed or land contract, you need to see an attorney as you will probably have issues executing deeds under these contracts that circumvent foreclosure laws, you can do a contract without executing a quit claim deed and implement a different security agreement, so see an attorney.

You could also use a lease-option, if that is appropriate for what you want to do, it would not be appropriate if you will be making repairs.

Anyone can pay the taxes due. :)

I will be speaking to the seller tomorrow, making my "pitch" to purchase the home subject to. At present I am very interesting in taking over the home since I currently rent it, and the owner has offered to sale it to me. The home is worth 81k and they are only asking for 67.5k. The trouble is, after doing a quick check in the taxes I discovered that they owe 24k in delinquent property taxes. This would easily be alleviated if I could get financed but I'm not able to qualify this point. Subject-to, seems my best bet, but I want everyone to be protected in the meantime. If I own the deed to the property, does that make it easier to get a loan?

Sometimes I read posts where I can tell someone really needs to study some more before they hit the streets, this is one of those posts.

A Sub-2 is an agreement that extends financing by a seller, in this case the owner is a landlord and you live in the property which means this is an owner occupied sale. You need to see an attorney to see if this seller is exempt from new federal laws, but you are bumping straight into the Dodd-Frank restrictions and need to see a mortgage originator.

Yes, obtaining financing is easier as to the loan to value and equity requirements if you are in title form over one year than being in a purchase transaction. Credit and income requirements will be the same.

You need more information and understandings of transactions and financing as a homebuyer, while you may not qualify you still need to see a lender and see what you need to do to qualify later on. You need to know before you give some "pitch" to a seller.

Might attend an REI meeting and see if you can get some guidance too.

Good luck :)

@Markeilsha R.

Are you implying that the owner is on an installment plan with the county to pay off the delinquent bill...24k on a SFH of that value tells me either he is more than 5 years behind or its facing auction really soon....

I deal with delinqunet properties all the time, its actually the heart and soul of my business. If somehow you could either get financing, or set up future financing and the seller is at 67.5 its a great deal if thats including the tax debt.

I can tell you, ive done so many of these deals, and its always the same, be careful, the owner is aware of whats going on, and its in their best interest to get some type of money out of this if they dont have the money to pay the tax bill....

I cant tell by the way you worded your question, on rather the property is free and clear and your landlord just paying the tax bill or is he still paying a mortgage, plus the taxe bill...

Originally posted by @Jason Farmer:
@Markeilsha Rodriguez

Are you implying that the owner is on an installment plan with the county to pay off the delinquent bill...24k on a SFH of that value tells me either he is more than 5 years behind or its facing auction really soon....

I deal with delinqunet properties all the time, its actually the heart and soul of my business. If somehow you could either get financing, or set up future financing and the seller is at 67.5 its a great deal if thats including the tax debt.

I can tell you, ive done so many of these deals, and its always the same, be careful, the owner is aware of whats going on, and its in their best interest to get some type of money out of this if they dont have the money to pay the tax bill....

I cant tell by the way you worded your question, on rather the property is free and clear and your landlord just paying the tax bill or is he still paying a mortgage, plus the taxe bill...

Jason,

The seller is still paying both, and yes they are facing the threat of tax foreclosure. Right now they are in a payment agreement, and are anxious to be clear of the home. I'm also anxious because I don't want to have to move should the home be taken. The cost of the back taxes would be rolled up in the final price of the home, along with the balance of the mortgage. The remaining sum would be paid in four installments annually over the next four years, with the option to pay it off sooner (if I find financing) without penalty. Does this sound like a viable deal?

Originally posted by @Bill Gulley :

A Sub-2 is an agreement that extends financing by a seller, in this case the owner is a landlord and you live in the property which means this is an owner occupied sale. You need to see an attorney to see if this seller is exempt from new federal laws, but you are bumping straight into the Dodd-Frank restrictions and need to see a mortgage originator.

Bill,

The home is still owned by the seller as a second property. They are not an investor engaged in "habitually taking on the role as a mortgage originator", so I'm not worried about so I'm sure we won't run into those problems. I am having trouble finding information on (in writing) restrictions to transferring a deed without having satisfied tax liens against the property. I'm in NY, I read in a real estate book that the delinquent taxes follow the property not the owners so I assumed that I would be responsible for them. My concerned was wrapped in the fact that it seemed to be a general rather than specific statement. Either way I am willing to roll it up into the total price of the home. It seems that I'm getting a good deal, since most of the interest on the home is paid on the original loan, and as a trustee it seems like I can seamlessly take over the current agreement for the taxes. I am determined to make this my first deal.

I also have questions about the trustee's control, of the deed itself. I intend to have them set up a land trust, and I will set up a property trust, which may or may not be stacked later on. I read a lot on ways to circumvent the "due on sale" clause, since their loan is not assumable. In my research NY seems to have a fee associated with transferring a deed. Am I required to pay this in a sub2 deal? I know the interest in the property that they sign will not be filed, but is something I do once everything has been paid off?

Trust me, I am fully aware that I have a lot to learn, before fully engaging this industry, some things I am aware and I ask because I just want a bit more assurance of my understanding, and some things I am completely unaware of. It's a process, but any and all constructive advise is welcome. Thanks :)

A Sub-2 is a transfer of title, if you have a transfer tax I'd say it would be due.

Unless your financing transaction falls under the exemptions of the St. Germaine Act, you can not avoid the due on sale issues, you may take steps to limit the risks but not entirely and without reserves and experience you'll have difficulty in reducing those risks.

A trustee has a fiduciary responsibility to a beneficiary, the powers of the trustee are stated in the trust documents.

Sounds like guru tactics using a trust, you can but it's certainly not needed and most simple land trusts do very little in reality to live up to the hype of using them.

Good luck on your deal :)

@Markeilsha R.

In my opion its a really good deal...I would go about it completely different i think your complicating a good deal..

I do think its a bit of a guru concept and things could get sticky if you dont face it head on, regarless of what anyone tells you, the bigger picture is can you afford the mortgage and can you afford the tax payment. It dosent matter what you work out with the seller, those two things wont just go away no matter how you wrap up the deal or how pretty you make it sound with land contracts and property trust...There are no loop holes when money is do...Thats the reality without all the big words and red tape...

If this financially makes sense for you and your family then go for it, i think its a great deal if you work it right...

All just my opion...

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.