Bank no longer paying taxes on home in default

Foreclosures
11yFollow

Bank no longer paying taxes on home in default

Chavis Atkins
Investor · Merrillville, IN · Member since 2014 · 76 posts · 12 votes

Hi, so I have a home that I found vacant and abandoned. Found this home almost a year ago but couldn't find the owner. Decided to go through my archives of homes I couldn't find the owner and decided to try facebook for this home's owner. Through relatives I find the owner and the owner agrees to sell me the home for 15k. It is a 3 bed 1.5 bath 1.3k sq ft with partial basement. 

She hasn't lived or had anyone in the home for 8 years now. She tells me she had a outstanding loan that was around 94k. Now I go to the Assessors site and it shows me her name still on the home and I went to check who is being mailed the taxes and it has her as the person to pay the taxes. Now the last thing recorded with the recorders office concerning the loan was that it was assigned to Chase in 2010. The mortgage was taken out in 2003 for 70k... now to the reason I'm on here.

She is willing to sell the home to me for 15k and out of that 15k she will pay her closing, back taxes and the other small liens recorded against her. We know she the owner of the home but not sure if the bank has dropped the home from their portfolio because the home is behind on taxes 2.5k and could be going up for tax sale this summer. The amount of 500 is due this May 11th along with what will be due for fall semester another 500 which is a total accumulation of 3.5 that needs to be paid. 

Don't banks pay the taxes on the home for however long so that they don't lose it a tax sale? Why would the bank stop paying taxes and let it get this far? Have the bank stopped paying and just have yet to record with the recorder they are releasing the mortgage? I would appreciate someone experienced with a situation like this as this isn't the only home I found like this, there is many more that I see that people have walked away a long time ago, home is not being taken care of by anyone and the taxes are behind but the owner has a outstanding mortgage.

0Reply
32 views

Most Popular Reply

Blair Poelman
Real Estate Broker · Provo, UT · Member since 2013 · 689 posts · 511 votes
11y

@Chavis Atkins

i'm not saying it's pointless. I'm saying if you want a clear title free from the encumbrance of a past unsatisfied mortgage you will have to do a quiet title action OR you can satisfy the mortgage.  That mortgage isn't going away without either the mortgagee releasing it, or having a court remove it.

My experience is the county tax sale in Marion County does not extinguish the interest of previous parties.  I've paid a lot of $$ for quiet title actions across more than a dozen properties in Indiana that will prove that.  I don't know about Lake County, but I would assume it's the same.

Buying a tax lien doesn't give you title.  You might be able to do something with the tax lien, but your name will not be on a deed. If you want to be on title you've got a completely different process to foreclose on that tax lien - that process involves paying off any other tax lien holders on that property, along with other steps that are specific to the county and/or state.  I'm not aware of any way to do a quiet title action on taxes, but if anybody knows how I'd be willing to pay a few bucks to hear how :)

Buying a tax DEED (county tax sale) MAY put you on title (depends on how they do it in Lake), but it doesn't necessarily mean that title is clear.  In my experience it is usually not clear, but not impossible to clean up.

I would advise that before you spend your money at the tax sale, or buy the property without a release of that mortgage, you do your homework. Ask around your local REIA and find an attorney that has worked these titles pot-tax sale. They will be a great source of info. it's also a good idea to do a PR prior to bidding and buying. That title might have a 2nd, or 3rd, or health code violations, or IRS liens, or other gremlins.

The quiet title action in this scenario should go the same as in any other scenario in that county - best to get specifics from an attorney.

1Reply
See this reply in the discussion

12 Replies

Jump to latestLatest
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    11y

    Banks fail to pay taxes all the time, particularly when the mortgage is in default.  If you "buy" this house from her, the mortgage will stay with the house.  Banks don't just "drop" the mortgages from houses. 

    0Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    11y

    Have you run this by your attorney?

    Sounds like an interesting situation and I hope it works out for you.

    I know some of the BP experts will weigh in and hope to learn something as well.

    Good Luck

    0Reply
  • Blair Poelman
    Real Estate Broker · Provo, UT · Member since 2013 · 689 posts · 511 votes
    11y

    I beleive Marion county will put this in the county tax sale at 5 years delinquent. (Not sure if you're in Indy)

    But just because you buy it from her for 15k or at the tax sale for $2500 doesn't mean that original mortgage goes away. You'll have to either satisfy the mortgage or do a quiet title action - which in Indy has taken me as little as 14 weeks and as long as 24 weeks. 

    0Reply
  • Chavis Atkins
    OP
    Investor · Merrillville, IN · Member since 2014 · 76 posts · 12 votes
    11y
    Originally posted by @Wayne Brooks:

    Banks fail to pay taxes all the time, particularly when the mortgage is in default.  If you "buy" this house from her, the mortgage will stay with the house.  Banks don't just "drop" the mortgages from houses. 

     Don't take this in offense but you don't know what you are talking about. Banks do drop homes that they come up with the outcome that they will not recoup their losses. I have a home RIGHT now I'm working on that the bank released the mortgage, why I don't know but the title search did not come up with the mortgage that home had on it, needing to be paid. Will be closing on this home next week. So this home can be a similar situation. And if banks fail to pay taxes all the time, what are they planning? Let the home be bought a tax sale. I appreciate that I not get such vague responses.

    0Reply
  • Chavis Atkins
    OP
    Investor · Merrillville, IN · Member since 2014 · 76 posts · 12 votes
    11y
    Originally posted by @Blair Poelman:

    I beleive Marion county will put this in the county tax sale at 5 years delinquent. (Not sure if you're in Indy)

    But just because you buy it from her for 15k or at the tax sale for $2500 doesn't mean that original mortgage goes away. You'll have to either satisfy the mortgage or do a quiet title action - which in Indy has taken me as little as 14 weeks and as long as 24 weeks. 

     I'm in Lake County Indiana. So what you saying is that homes that are bought at the tax sale are pointless for investors to buy that have outstanding mortgages because the new owner will be having to satisfy the mortgage? That don't make sense to me. Everywhere I read up is that tax liens take precedent over mortgages liens. Secondly, can you explain how doing a quiet title action works in this scenario?

    0Reply
  • Blair Poelman
    Real Estate Broker · Provo, UT · Member since 2013 · 689 posts · 511 votes
    11y

    @Chavis Atkins

    i'm not saying it's pointless. I'm saying if you want a clear title free from the encumbrance of a past unsatisfied mortgage you will have to do a quiet title action OR you can satisfy the mortgage.  That mortgage isn't going away without either the mortgagee releasing it, or having a court remove it.

    My experience is the county tax sale in Marion County does not extinguish the interest of previous parties.  I've paid a lot of $$ for quiet title actions across more than a dozen properties in Indiana that will prove that.  I don't know about Lake County, but I would assume it's the same.

    Buying a tax lien doesn't give you title.  You might be able to do something with the tax lien, but your name will not be on a deed. If you want to be on title you've got a completely different process to foreclose on that tax lien - that process involves paying off any other tax lien holders on that property, along with other steps that are specific to the county and/or state.  I'm not aware of any way to do a quiet title action on taxes, but if anybody knows how I'd be willing to pay a few bucks to hear how :)

    Buying a tax DEED (county tax sale) MAY put you on title (depends on how they do it in Lake), but it doesn't necessarily mean that title is clear.  In my experience it is usually not clear, but not impossible to clean up.

    I would advise that before you spend your money at the tax sale, or buy the property without a release of that mortgage, you do your homework. Ask around your local REIA and find an attorney that has worked these titles pot-tax sale. They will be a great source of info. it's also a good idea to do a PR prior to bidding and buying. That title might have a 2nd, or 3rd, or health code violations, or IRS liens, or other gremlins.

    The quiet title action in this scenario should go the same as in any other scenario in that county - best to get specifics from an attorney.

    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y

    @Chavis Atkins What do you think the house is worth? The basic advice seems to be, if it's not worth significantly more than the mortgage and other encumbrance costs combined - why would you even bother? 

    Just because you found a Bank that is prepared to take a bath on one of their delinquent mortgages (make sure you get that in fool-proof writing), doesn't mean that is the norm. Cheers...

    0Reply
  • Chavis Atkins
    OP
    Investor · Merrillville, IN · Member since 2014 · 76 posts · 12 votes
    11y

    I'm not saying this is a regular occurrence, I'm saying that this situation is worth being examined and that there is possibility that homes that are out there sitting for years with no one doing anything about them, maybe the banks have they plates full to the point they aren't putting the time or feel the mortgage isn't a priority on their list anymore. I know the simple way to go about this is just putting it under contract and letting the title company do their thing but I rather not. My main issue I want to have addressed is why banks would let a home go behind on taxes for? Is this a sign of anything? If they were paying them before, why all of a stop?

    0Reply
  • Chavis Atkins
    OP
    Investor · Merrillville, IN · Member since 2014 · 76 posts · 12 votes
    11y

    Also I already have a buyer that wants the home. We did comps and the home will sell for 85 to 90k. Buy for 15k, 5k wholesale fee, 35k repairs, 10k for future commission/utilities/taxes and buyer will profit around 20k to 25k off this home.

    0Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    11y

    You are hopelessly confused between trying to buy the asset versus trying to buy equity at a discount.

    Banks and other secured lenders can do whatever is legal, within their charter and what they believe to be in their stockholders', servicing clients' managers' best interest.

    Lenders gave no moral or contractual obligation to protect the borrower's property. To the contrary, the borrower has such a duty to preserve the security used as collateral, in this case, a house. 

    As a longtime, seasoned real estate and note investor (as well as mortgage company owner) we certainly monitor taxes (and insurance, too). However, I've been burned by advancing taxes before and not so quick to do so nowadays. 

    While it makes sense that a lender would want to protect their position, mortgage lenders are free to design and implement their own policies without concern for borrowers and would-be investors second guessing their actions and motives.

    1Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Chavis Atkins:
    Originally posted by @Blair Poelman:

    I beleive Marion county will put this in the county tax sale at 5 years delinquent. (Not sure if you're in Indy)

    But just because you buy it from her for 15k or at the tax sale for $2500 doesn't mean that original mortgage goes away. You'll have to either satisfy the mortgage or do a quiet title action - which in Indy has taken me as little as 14 weeks and as long as 24 weeks. 

     I'm in Lake County Indiana. So what you saying is that homes that are bought at the tax sale are pointless for investors to buy that have outstanding mortgages because the new owner will be having to satisfy the mortgage? That don't make sense to me. Everywhere I read up is that tax liens take precedent over mortgages liens. Secondly, can you explain how doing a quiet title action works in this scenario?

     I can't speak for legalities in IN.  Honestly, I can hardly speak about legalities in NC.  But I do have a relevant example.

    At a local tax auction a few months ago, a property, vacant and abandoned, came up at a decent price.  The auctioneer mentioned that anyone buying that property at the tax foreclosure sale would afterwards have to deal with the mortgage holder who still held a lien on the property.  The bank was holding out for nearly $50K.  The property went unsold month after month. 

    So, at least in NC, a property sold at a tax foreclosure auction can still have a mortgage attached to it.  It may not make sense, but it apparently happens.

    Good luck Chavis.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    11y

    @Chavis Atkins Yes, I have seen mortgages unexplainably satisfied before, perhaps by mistake...maybe 1 in 10,000?  Just saying it's foolish to think a mortgage will be released just because a property is vacant, and taxes are behind.  I see mulriple properties going to tax deed auctions each month with mortgages.  Whether the payments simply slip thru the cracks, or the lender has other issues and just decides to take whatever surplus they can get at at the auction....who knows.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free