Vacant, $49k in back taxes owed.. Subject-to?

Buying & Selling Real Estate
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Vacant, $49k in back taxes owed.. Subject-to?

Anthony Bonaiuto
Investor · Cleveland, OH · Member since 2017 · 19 posts · 6 votes
Hello fellow BP members! My name is Anthony, I'm new around here. I've enjoyed reading a lot of the articles and the podcasts are amazing! I currently own a Triplex property in Cleveland, and I'm looking for another property to purchase. There is a house on a nice street that has been vacant for a few years, so I looked it up and found out the owners owe $49k in back property taxes. I'm not sure if they've kept up with the mortgage, because it's not in pre-foreclosure as far as I can tell. Seems like it has potential to be a subject-to deal.. I've never done a subject-to, however I'm familiar with the process. Has anybody purchased a property with that much owed in taxes? I'm sure the county will negotiate in the amount owed, as something is always better than nothing. Who would be responsible for paying the back taxes owed? Basically I'm not exactly sure where to start on this, or if its even a feasible deal for a new investor like myself. If it makes sense financially then most likely I'll send a letter to the owners and see if they're interested in being relieved of their burden. If I end up getting the property I'd like to hold and lease it, or potentially do a lease option.. I'll be sure to do my homework and have a through title search in case there are other liens on it as well. This would be my second property so any and all advice is greatly appreciated!! Thanks in advance! Anthony
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
9y

I would forget about all that subject-to shenanigans. Subject-to sounds an awful lot like mortgage fraud to me. Get qualified for your own mortgage or bring cash to the table. 

What you would want to do is send them a letter and see if they want to sell it to you. If the back taxes, closing costs and mortgage payments all total up to less than what you are willing to pay for the home it sounds like you got a shot at making a deal happen. If they are all total up to more than what you are willing to pay sounds unlikely as this seller doesn't seem like one that has any money to bring to the table.

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y

    I would forget about all that subject-to shenanigans. Subject-to sounds an awful lot like mortgage fraud to me. Get qualified for your own mortgage or bring cash to the table. 

    What you would want to do is send them a letter and see if they want to sell it to you. If the back taxes, closing costs and mortgage payments all total up to less than what you are willing to pay for the home it sounds like you got a shot at making a deal happen. If they are all total up to more than what you are willing to pay sounds unlikely as this seller doesn't seem like one that has any money to bring to the table.

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  • Matt Motil
    Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
    9y

    This is a horrible Sub2 deal. Property Taxes are always a first position lien, meaning you will lose the house to tax foreclosure even if you're current on the mortgage payments. Unless you're willing to come in and take over/assume the loan AND payoff the back taxes, this deal sounds horrible.

    My assumption is that there isn't a loan in place, as most lenders want the taxes paid through the escrow they hold so that they don't end up in a situation like this where they could lose their asset when the owner doesn't pay the taxes. 

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  • Federico Gutierrez
    Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    9y

    This just screams RED FLAG, STAY CLEAR. 

    The city will probably take this to the tax sales before you even get to working out a deal with the current owner.

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  • Mike Flora
    Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
    9y
    Figure out what you will pay for property, then contact owner to see if they will even do anything with their property. If the numbers add up for it to be a deal for you then an all cash deal will be best. TITLE CANNOT TRANSFER WITH TAXES OWED, so sub to is out of the question and sounds like property is free and clear with that much owed. In 5 years unpaid taxes it will go to auction so you do have some leverage with that much owed. Write up an all cash, as is offer to owner and state in your contract all back taxes be brought current by seller at close of escrow and the proceeds of your offer will pay the back taxes off.
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  • Mike Flora
    Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
    9y
    Sorry, title cannot transfer until taxes are paid so even if you take sub to the taxes will have to be paid before property goes into your name. I said that wrong in the last post lol
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  • Anthony Bonaiuto
    OP
    Investor · Cleveland, OH · Member since 2017 · 19 posts · 6 votes
    9y
    Thanks for all the input everyone! I'm going to mail them a letter and see if they're even interested in selling, and then take it from there. If i do move forward I'll make them a small cash offer and assume the taxes. I don't want to pay any more than 60k total including taxes. If it doesn't work then at least I learned a few things for my next deal! Thanks again guys!
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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y
    Originally posted by @Mike Flora:

    Sorry, title cannot transfer until taxes are paid so even if you take sub to the taxes will have to be paid before property goes into your name. I said that wrong in the last post lol

     Actually you can assume back taxes. I have worked out many deals where distressed sellers were able to get a higher price point from the buyer because everyone agreed that the buyer would  assume the taxes instead of pay them off at closing. Seller is happy because they were able to net more. Buyer was happy because they didn't need to bring as much to the table. It's like getting Uncle Sam to write you a mortgage on a highly distressed asset. You will of course pay interest and penalty fees though. So it is all a give and take.

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  • Mike Flora
    Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
    9y
    James Wise thanks for that info, I always thought taxes had to be paid to transfer title! Is it as easy as having title/escrow write it up before close for both parties to sign or you gotta go through county? Could be a good for a flip cause you can still not pay it until the sale on your end and it's no money out of pocket to get it done and the original seller, who sold it to you, is happy not to pay it.
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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y
    Originally posted by @Mike Flora:

    James Wise thanks for that info, I always thought taxes had to be paid to transfer title! Is it as easy as having title/escrow write it up before close for both parties to sign or you gotta go through county? Could be a good for a flip cause you can still not pay it until the sale on your end and it's no money out of pocket to get it done and the original seller, who sold it to you, is happy not to pay it.

     It's pretty simple title drafts a doc and all parties acknowledge that buyers is assuming.

    Yes the flip scenario is one benefit of doing it this way.

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