Who is on the hook for back taxes?

5 Replies

I bought a property in March 2014 (normal closing here in NC - via attorney).  Today, I get an overdue notice from the County for some transfer taxes in 2013 (i.e. way before I owned it). Of course, the county takes the position that they will collect from whoever owns the property now.  I forwarded the bill to the closing attorney who agreed fairly quickly to pay it.  So, all is well for me, but this did make me wonder as to who is really legally on the hook in this type of situation.  My assumption is/was that it's the attorney's job to search the tax records at closing and make sure everything is settled.  This may be why he so readily agreed to pick up the tab.  However, just made me wonder who would really be left holding the bag if he bailed on me.  Would title insurance pick this up?

Yes for the closing attorney/title co. liability, not for the title insurance.  Title insurance has exceptions for all the normal stuff that should be done.  The attorney likely is going back after the seller, as it was his liability, just not discovered at the closing.

You're right on your assumptions, he picked up the tab because he should have caught it. Now, he can then seek collections from the party originally responsible to pay it. Yes, title insurance can cover the liens of record and taxes as accrued as the settlement is insured and should have been collected and paid. The attorney could also go to the settlement agent of the prior settlement.  

This is to accrued taxes, not estimated taxes where a tax base or rate may change such as with new construction because at the time of settlement the tax may not be assessed or known, but will generally be estimated at settlement and who pays may be to local custom or by contract. :)

There is a secured and an unsecured tax roll.  Most taxes stay with the property if properly noticed by the taxing authority timely.  If for some reason a taxable event is not discovered before a transfer of ownership then the taxes become unsecured and the previous owner is on the hook.

Was your transaction a regular sale or REO/ Short Sale? I run into two similar cases.

The first case the title company missed the garage bill that was supposed to pay at closing.  The title company reimbursed me right away.

The second case a fixing city code violation bill was added onto my tax bill. The violation happened during REO. The case was an active case when I was closing the escrow. So the title search could not see it. The title company refused to reimburse me. The lawyer from the title company showed me the clauses in the policy that they are not responsible for anything like that. I have to pay the bill even it happened before I own the property. We need to learn the lesson here. Always check with city to see whether there is any active case open when you buy REO/Short Sale.

Thanks BeBe. No, my particular case was not a REO/Short Sale, but this is good information to keep in mind. Thanks! @BeBe Cheng  

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