Can I Sell My House With Back Taxes?

The property tax lien is paid before lender liens.

Property taxes help pay for government services. Procedures in place to collect back taxes vary by state and county. When selling your house with back taxes due, the proceeds from the sale pay off the taxes. If the sale price is not sufficient to pay off the taxes and other debts on the property, you can't close escrow without the approval of those who have liens against the property.

Lien State

Some states are lien states. If yours is a lien state, this means the government sells your tax lien to an investor, who pays off the back taxes. You now must repay the investor, plus high interest and fees. The time allowed to pay off the debt varies by state. If the time limit runs out, the investor has the option to foreclose and you risk losing the property before you are able to sell. If you owe back taxes and you live in a lien state, investigate the time limit and procedures in your state before proceeding with a sale.

Deed State

In a deed state, the government can foreclose on the property and sell it to repay the back taxes. As in lien states, the procedures vary by county and state, and it is in your best interest to investigate the process for your area. If you owe back taxes and wish to sell the property, do so before the state has foreclosed and you have run out of time.

Listing Price

When setting the listing price on your property, determine how much you need to pay off all the property loans, the back taxes, any other liens and the real estate commission or other selling costs, before deciding on a price. For the house to close escrow there must be enough funds from the buyer to pay off all the parties.

Short Sale

If you need to sell the property, yet the house is not worth enough to pay off all the debts, one option is to short-sell the house. This means the buyer's purchase price is short of paying off all the debts. In some situations, the seller puts cash into escrow to cover the difference between what the buyer pays and the seller owes. Another option is to ask the lenders to agree to a short sale. This means they accept less than the outstanding debt and they release the liens against the property. You may or may not be responsible for repaying the unpaid balance. Consult with an attorney and accountant before proceeding with a short sale.

References

• "Modern Real Estate Practice"; Galaty, Allaway and Kyle; 2006
• Chase Homeownership Center: Short Sales FAQ
• National Oceanic and Atmospheric Administration: Short Sale Information
• Arizona Association of Realtors: Short Sale Seller Advisory