Deed cannot be filed due to taxes owed in MI

26 Replies

A buyer recently paid off her contract for deed which was held by me. She cannot/has not recorded the deed due to the fact that  property taxes are owed by her and in Genesee County, property cannot be conveyed if property taxes are owed.  I want the property out of my company's name.   The county continues to send tax notices and threats to me.   I promise that I'll never do business in MI again, but what can be done to fix this or do I forget about it and rest well?

@Mike Mitchell I'm not familiar with MI laws so this just a guess. Have you thought about recording a Quitclaim Deed? This is one way of declaring that you have no further interest in the property and that it's transferred to the grantee.

The best answer to your question though would be from a MI RE attorney.

@Andy Mirza - they will not allow even a QCD recorded if taxes are owed. I have gone through this not only in genessee county but also other counties in Michigan. Its actually a genius idea by the county as it forces the taxes to get paid. 

For the lender on the CFD, there is not much you can do as you sent the borrower the QCD already as if you pay it there is no guarantee the borrower would pay you back now

@Chris Seveney Interesting strategy to get people to pay their taxes. In reality, does that end up causing problems like this, where the owner of record is out of the picture and someone else is holding on to an unrecorded deed to the property?

What's the best strategy for the OP? I would tend towards the "forget about it and rest well." The OP recovered his investment and should be out of it but the property hasn't transferred to the new owner because of this recording restriction. What further liability really is there? (Again, just my thoughts and opinion. I'm not familiar with MI law or this situation.)

I would agree with you @Andy Mirza . @Mike Mitchell , if you lose the property to tax sale, is that really a problem? At this point, the borrower should be motivated to pay the taxes if she wants the property. I see why you would want to be out of the picture but I would not be in a rush pay the taxes myself. 

@Andy Mirza - That would be my thoughts as I have sold CFD's and never get recorded. The only issue that could come up is if they let the property go to hell and it picks up nuisance liens and this OP has other properties in that jurisdiction they may stick with the property. The question also not answered is how much is the tax bill, if its a few hundred bucks then If it was bothering me that much I would pay it and tack it up to cost of doing business, if its in the thousands I would possibly get an atty to review it to see what other options there are. I would also contact the tax office and send them a copy of the deed so they know to stop bugging you.

SIdenote: This is why I always get someone to record the deed for the borrower, if you do it you control it. It does have a cost but is less aggrevation. Typically fees are less as it is for satisfaction of a land contract.

Thanks for your thoughts Andy and Chris.  So yes, the question becomes what is the worst thing that can happen to my company?  We've done everything correctly, the payer wouldn't pay the taxes and here we are!

The premise here is that we the investors become the unpaid collection agents for the county and we are caught in the middle.  In other places it works fine to have the counties collect the tax or take the property through a tax sale.  In this case, I have no power to make the buyer pay the tax.  They have fulfilled the contract with me.

It seems to me the only risk to you or your company is that the property would be taken for the taxes owed. So what, as far as you are concerned you don't own it anyway.

One possibility for getting around the inability to record a quit claim deed is record a "memorandum of deed". Saying that a deed has been granted to and accepted by the CFD purchaser. Now you may need to title it something different than "Memorandum of Deed" and be careful of the wording to get it recorded. My guess is there is a way to get it on record somehow that you no longer have an interest in the property. Maybe it could be titled "Disclaimer of Interest"

What does the contract say? 

It may state that the contract purchaser agrees to pay the RE taxes... and if they don't, the seller will pay and seek reimbursement. Or it may state something else entirely.

Why was a Deed executed before confirming that the RE taxes were paid? Washing your hands of this while you've been paid the full purchase price and the property is lost to tax sale while still in your name is not the correct course of action, imo.

Originally posted by @Chris Seveney :

@Andy Mirza - they will not allow even a QCD recorded if taxes are owed. I have gone through this not only in genessee county but also other counties in Michigan. Its actually a genius idea by the county as it forces the taxes to get paid. 

For the lender on the CFD, there is not much you can do as you sent the borrower the QCD already as if you pay it there is no guarantee the borrower would pay you back now

State of WA has the same laws..  I was doing a screaming sub too pre foreclosure .  Went to record the deed before i sent my money to the trustee to redeem.. and low and behold there was 25k in back tax's I knew there were back tax's but was expecting to take title sub to them and deal with them when i flipped the property.. had to scramble and get a cashiers check and the Excise tax and walk them to each department to get my deed recorded..

In the Michigan one OK i see the issue CFD so property still in your name.. thats an interesting one.

 

Since you can't record even a QCD, how about at least changing the address and any contact info so that stop harassing you. I know this can be done easily online in my area.

Maybe talk to a local attorney about your options.

Originally posted by @Joshua B. :

@Mike Mitchell how about paying the taxes and in return getting a note/mortgage for the amount?

Advancing taxes and taking back a note with interest could be a good solution if it is all handled simultaneously. 

Technically the buyer on the CFD only has an equitable interest.

They won't get fee simple interest until the deed is recorded.

They can't record the deed until the taxes are paid.

The mortgage is a valid lien when the the buyer has title and it is recorded.

If @Mike Mitchell handled the advancement of taxes, recording of deed, and then recording of Mortgage all at once it could work.  I'd be curious to know what kind of tax amount we are talking and how delinquent?  

 

@Mike Mitchell , this is kinda funny (and annoying). I hadn't realized it until now but we are in a very similar situation as you. 

We have been converting many of our land contracts to notes/mortgages and deeding the properties over to the borrowers. We have done a bunch of these in Michigan already. Leaving out some details, here is the story on this one (also in MI):

  • We purchased this CFD in Dec 2019.
  • It took several months and a whole lot of frustration and work to get this loan boarded with our servicer (Servicer #1).
  • The accounting for the escrows (handled by the CFD seller, not their servicer) was a total disaster.
  • At the time, we were trying out a new servicer (Servicer #1) that ended up being terrible. 
  • We decided to pay the back taxes owed, which amounted to over $2k (since the original CFD owner did not collect to pay them at closing).
  • I repeatedly tried to get the servicer to collect more in escrows each month to avoid a future shortage. This went on for months and nothing materialized. Did I mention that Servicer #1 was terrible? 
  • We decided to convert this CFD to a note and switch servicers simultaneously (rather than boarding with Servicer #2 and then converting to a note right away).
  • You may be able to see where this is going.
  • We sent the borrower the conversion docs in mid-November 2020 and she took a good 6 weeks to get them back to us. (Yes, @Chris Seveney , we have been trying the mobile notary route as well for other properties :-)  .)
  • As of now, there are $1400 in back taxes owed, again. These were not yet delinquent when we prepared the conversion docs, but a taxes check is now being added to our CFD conversion checklist.
  • We planned to do the QCD and conversion free of charge for the borrower (often costs us $500 with transfer taxes), and we still plan to. All docs are executed and ready to be recorded.
  • Now we're stuck until one of us pays the back taxes.
  • One good thing is that through the research we did on this, we discovered that Servicer #1 (who had a bunch of our loans for most of 2020), still had money in their trust account for the escrow balances on this loan and one other loan we had transferred out months ago. They have since cut a check to Servicer #2 for those two escrow funds. 

If anyone has any insight, please chime in. 

A couple of things that would prevent this in the future:

  1. 1.  Require escrow for taxes
  2. 2.  Write loans as a Note and Mortgage

For this particular case you have a few options:

  1. 1.  Let the property go to tax sale.  More than likely they will pay, but read your contract to make sure you are not going to get sued.
  2. 2.  Write a check to the school of hard knocks and put another diploma on your office wall.
  3. 3.  Write a new load to the borrower (maybe a note and mortgage this time) for the amount of taxes.  Then pay the taxes and collect over time.
  4. 4.  Pay them and seek to recover in small claims court.
Originally posted by @Drew Sygit :

@Mike Mitchell why not threaten the buyer with foreclosure? Assuming your land contract required taxes to be maintained.

Foreclose on what? The borrower paid off the loan.

@Mike Mitchell - One other option you could do is record the land contract AND record a satisfaction of land contract as well, then the county typically would chase the actual borrower. Of course this would cost $ and without knowing how much the taxes are, it may be cheaper to do nothing.

 

Originally posted by @Arnie Abramson :

Why don't you record the deed that you sent the buyer?

The challenge is they are unable to file the deed as property taxes are owed by the buyer and in Genesee County/Michigan property cannot be conveyed if property taxes are owed.

 

Originally posted by @Jamie Bateman :

@Mike Mitchell , this is kinda funny (and annoying). I hadn't realized it until now but we are in a very similar situation as you. 

We have been converting many of our land contracts to notes/mortgages and deeding the properties over to the borrowers. We have done a bunch of these in Michigan already. Leaving out some details, here is the story on this one (also in MI):

  • You may be able to see where this is going.
  • We sent the borrower the conversion docs in mid-November 2020 and she took a good 6 weeks to get them back to us. (Yes, @Chris Seveney , we have been trying the mobile notary route as well for other properties :-)  .)
  • As of now, there are $1400 in back taxes owed, again. These were not yet delinquent when we prepared the conversion docs, but a taxes check is now being added to our CFD conversion checklist.

If anyone has any insight, please chime in. 

    That is one for the story books! We have done some CFD conversions as well. In addition to checking the status of taxes we are also checking on the status of hazard/property insurance and making that a requirement of the conversion. If there aren't already escrows for tax and insurance it is also a good time to add them.