How do we cover the back taxes on a Sales Agreement

4 Replies

Hi All - If we're filling out a standard purchase and sales agreement for a cash deal, how would we include the paymeant of back taxes on the contract if this is part of the deal. Would that just be factored in to the cash offer, or is that another line, etc. Thanks!

Taxes and assessments are typically paid out of the sale proceeds before the seller is paid. Lines 510-512 on the HUD-1 settlement form.

Nothing is needed to be stated on the P&S specific to taxes.

Oh ok, so then that's all factored in at a later time. Thanks for the info

Nothing is needed to be stated on the P&S specific to taxes.

I disagree with that statement. Absolutely the contract must address the back taxes. Fortunately most contracts you are likely to use will address it. 

Most contracts will have language similar to "Seller will provide free and clear title as of the date of settlement" There may also be language that says "taxes, municipal bills, water etc will be adjusted as of the date of settlement" read the contract you use and understand what it says. 

If for some reason the contract does not mention this then you need to add how the back taxes will be handled.

I just closed on number 8 SFR on Wednesday. The sale came about due to a scheduled tax deed sale. Our contract was for the property free of all encumbrances and the back taxes were paid out of the sale proceeds. Please note: in Cape Coral, Florida they often have city water and sewer assessments. These are not automatically paid out of sales proceeds and are attached to the property. When it transfers, the obligation also transfers. You did ask a good question: it is much better to ask in advance than find out bad news AFTER you are the new owner!

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