Giving the bank a deed in lieu of foreclosure can be an effective way to get out from under a property and avoid some of the worst consequences of having a house fall into foreclosure. Homeowners are often concerned what they will have to pay even in this situation, though, and they do not want unresolved issues like property taxes to come back to haunt them in the future. In fact, the issue of who pays the property taxes and how much deserves attention by homeowners to make sure that their deed in lieu is done more efficiently.
Foreclosure victims will still owe any back property taxes on a house that they give the bank a deed in lieu of foreclosure on. Now how much they actually owe and who will come and collect it from them if it remains unpaid will depend largely on the circumstances of the foreclosure situation. How this issue is handled may be quite different in certain counties and states, and will also depend on if the owners are paying taxes through their monthly mortgage payment or on their own.
Actual property tax calculations will be a little bit different from state to state (and even in different counties within a state, not to mention city property taxes, if applicable), but in general homeowners will owe the taxes due this year for every day that they own the property. Once the deed in lieu is given to the bank, the lender will then owe the county taxes for every day of the year from that point onwards. This is a bit of a simplification, but individual county procedures make any specific illustrations difficult.
For example, if the ad valorum taxes are $365 per year, that comes out to $1.00 per day. So if the foreclosure victims own the house for 145 days out of the year, and then transfer the property back to the bank, they will owe $145.00 in property taxes. The bank will own the balance of that year's taxes to the county.
But if homeowners are escrowing the taxes through their monthly mortgage payment, then even if they are behind on the loan, the bank will most likely make sure the property taxes are kept current. The amount that the lender pays to the county is added to the total mortgage balance and the amount the owners would need to reinstate the mortgage any time before the foreclosure auction. So if they are escrowing, the taxes have probably been paid to the county, and any collection attempts by the county is not a concern.
However, in cases where the homeowners escrow taxes on their own, they may have to pay any back taxes before the bank will accept a deed in lieu of foreclosure from them. Mortgage companies do not want to take the property back and let homeowners off the hook for the foreclosure if there is a danger that the county is going to auction the property for unpaid taxes. Again, the foreclosure victims would be responsible for the taxes up until the day you are no longer the owner of the house.
The actual date of transfer on the deed is handled a little bit differently in counties, so this may be an issue to watch out for and check on before transferring the deed in lieu of foreclosure. Some counties may require homeowners to pay that day's share of the taxes, while others will determine the bank to be responsible for that one day portion of the property taxes. It would be necessary for homeowners to check how their county calculates this charge on property transfers to make sure it is all paid correctly. But this is usually only an issue if the owners are not escrowing payments.
So, if the yearly property taxes are escrowed through the mortgage, then they have probably been paid by the bank even if the owners have not made a mortgage payment in months. In this case, when the bank accepts the deed in lieu, there is nothing to worry about from the county. The lender accepts the deed to the house knowing that the owners did not pay the taxes, since the bank paid them and was never reimbursed. But if homeowners are paying taxes on their own, they may have to make sure the payments are current for up to the day they are the legal owner of the house. It might be a small price to pay to avoid a full foreclosure, though, and be worth it in the end.
The ForeclosureFish website has been created to provide homeowners with information and tools they can use to prevent foreclosure while they still have time. The site describes various methods that may be used to save a home, such as deed in lieu of foreclosure , bankruptcy, cash for keys, hard money loans, and more. Visit the site to read more articles about how foreclosure works and how the process may be avoided before it is too late: http://www.foreclosurefish.net/