Taxes not paid prior to purchase

6 Replies

Hello All,

I purchased my first rental property last June. Taxes are due twice a year here, and I just found out that the taxes were not paid on this property that were due in April 14. This was before I closed on the property. It was only one season's worth of payments, however am I on the hook for this?

The title company has not gotten back to me and told me they can't find my file.... great... and I was never even notified about this prior to purchasing the property. Obviously a learning lesson here, but at the same time isn't this the title company's job? Any recourse on my end?

Thanks!

Typically there is a municipal lien certificate filed that states all taxes are paid to date and any that are prepaid are adjusted at closing. The buyer is responsible for the MLC. The closing attorney is typically the person that orders the MLC and handles the adjustment. (I'm speaking about MA but I would think it's the same in other states or similar). If this was not done, In your state you use a title company, here we use a closing attorney but they both serve the same function. In MA, you would be responsible for the back taxes as they will become a lien on the property if not paid. That is the point of the MLC; to ensure there are no liens and the taxes are paid. 

Do you have copies of the closing documents? This should all be on the HUD. Whatever the title company has you should have the same files. They wouldn't have any other documents.

Paul, the MLC that Rob refers to may be a MA specific term, but it is the responsibility of the title company or closing attorney, depending on state custom and law, to see that all taxes are paid, via a prorated entry on the HUD through the date of closing.

If that didn't happen, your title insurance should cover it.  You did buy title insurance, didn't you?  

The problem is that to open a claim, you need to start with the closing company, and the reality is that they are on the hook to the title insurer, so they are usually reluctant to open a file.  Hence the reason they can't find the file.  It should be all electronic anyway, and not only on paper, so that's a ridiculous reason.

If they won't file a claim, you'll need an attorney to contact them.  

But here is the rub:  the attorney is likely to cost more than the taxes in question, depending on the amount due.  So I'd ask for the supervisor at the title company and make it clear you need answers and can produce your copy of the documents.  Push on this, because they are very aware that they are on the hook.  Also know that all title companies have attorneys either on staff or frequently the owner of the company.  

I don't know AZ law and custom, but title insurance is title insurance.  How you get to the end result might be different, but the bottom line is the same.  

And next time check your HUD to make sure the taxes are prorated up to the date of closing.

As others have said, the taxes should have been paid upthru the day of closing.  Not only the April payment, but you should haven received a credit for the additonal 2months or so prior to closing.

I would expect title to pay the taxes at this point - they should have discovered the past-due taxes.  I had a similar situation here in TX where a prior year's taxes were left unpaid at closing.  I got a payment request from the county, forwarded it to title, and they paid.  I did have title insurance.

Did you not receive a closing packet or HUD settlement statement at closing? I had a title company in MD that closed remotely using a local attorney at my real estate agent's office, and he told me they'd have to mail me all documents, which they never did. They also never recorded the sale. Luckily, I wouldn't leave the office until my real estate agent made me a copy of the signed settlement statement, so at least I had that. After months of inaction from the title company, the folks here on BP instructed me to contact that title company's underwriters and also the state insurance commission to file a complaint against them. Not only was my issue resolved, but they investigated the title company, and a few months later, I got an entire closing package delivered to me in the mail.

@Paul A. Also, check your HUD. They may have in fact deducted the taxes from the seller's proceeds, but simply failed to forward the funds. Read your HUD statement.

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