All homeowners must pay property tax. But when you buy and sell a home, especially in the middle of the year, who’s responsible for the property taxes?
Property taxes are typically paid twice a year and they are paid in advance. Payments are due on the first day of March and the first day of September. Many homeowners will have their real estate taxes and homeowners insurance wrapped into their monthly mortgage payment, even though they don’t actually pay monthly on their property taxes. An escrow account is set up to make those by annual payments and if there’s any money left over, homeowners typically get a refund. Typically, the closing on a home sale will fall somewhere between the middle of attacks. So there’s either money that’s already been paid towards taxes or money that will be left over.
As part of the real estate closing, the escrow or settlement agent will divide the tax. Into two parts: the time that the seller owned the home and the time the buyer owned the property. The seller is responsible for the property taxes up to, but not including, the date the house was sold. The buyer is responsible for taxes on the sale date and there afterward.
At closing, the buyer can reimburse the seller for the property taxes that of already been paid. The escrow agent will figure all of this out and have specific dollar amounts in your good faith estimate or in the final settlement documents. One of the nice things about having an escrow agent to all of this for you is that the typical buyer or seller doesn’t have to figure this out. It’s already built into closing costs for both buyer and seller.
What about a house with a property tax lien on it?
If a property has a tax lien, which is a claim the government makes against a property if there has been negligence on payment or delinquent taxes, the homeowner must pay the delinquent amount before they can sell or even refinance. The lien can be paid in part or full by equity the homeowner has in the property or out of the sale proceeds they receive at closing as long as it is written into the documents. The lien is typically paid off first as is the current mortgage. When a homeowner sells the house with a lean, the amount is added to their part of the expenses during the closing costs of the sale. It’s not added onto the sale price. Most of the time homeowners can include this in their closing costs, but if the tax lien is too high, other options may be necessary.
It’s important to contact a real estate attorney for other questions on property tax liens and issues that can arise.