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When a home goes into foreclosure, financial chaos is about to ensue, particularly with regard to bills that go unpaid. It’s true that foreclosure eliminates mortgage debt from your credit report, but any existing foreclosure property tax bills (both past and present) remain. The taxes are due to the local level of government no matter what your ability to pay the mortgage may be, and so it remains an obligation. The precise party responsible for the taxes at any given time depends on the point where the home sits in the foreclosure process. Specifically, it depends on whether the home is still waiting to go to court or has been sold at auction to its next owner.
The Borrower If you are the one who took out the mortgage to buy the house and are now the one going through foreclosure at the hands of your lender, you are on the hook for property taxes until the auction takes place. As long as you are the owner of the home, you are the one responsible for the tax bills. Because you can’t afford to pay the mortgage, it’s likely that you haven’t paid the taxes either. In some cases, the lender puts the tax money down as a part of the foreclosure proceedings in order to safeguard the investment, so in that case, the home may not be delinquent on property taxes
Lender The lender is not the responsible party of the taxes, but if the property is awaiting sale at auction, the lender might or might not front the taxes. The lender is ready to sell the property to get its money back, but if the government seizes the property for back taxes, the lender has no remedy. There are times when a property will go through an auction without anyone purchasing it; in that case, the lender is the new owner and then becomes responsibility for the taxes.
New Purchaser If you buy a house at a foreclosure auction, you are now on the hook for foreclosure property taxes. Because you bought the home, the lender did not become the owner and there is no foreclosure property taxes owed.
Considerations Foreclosure Property tax obligations follow the property rather than the person who owns the property. So if you want a foreclosure property in order to save money, you may have some back taxes on your hands to pay off. This is why performing a title check on a property is so crucial. If you buy a house that has existing tax obligations but fail to pay them, you can end up losing the house as well. Talk to a tax collector before bidding at a foreclosure so you do not receive a bill you weren’t expecting.
How do foreclosures affect property values
If you are looking at real estate as an investor or are looking for a value price on a new home for yourself and your family, you may be wondering, “How do foreclosures affect property values?” The simple answer is that each foreclosure has a unique influence on property values, depending on the circumstances, specifically on the bank’s ability to sell the home at a price at or close to fair market value.
Foreclosures and Property Values
In some cases, foreclosure happens quietly and quickly, and the bank can sell the house fairly close to (or at) market value. The occupant moves out, and the new owners move in, with the only sign of the transition being a realtor’s “For Sale” sign. In other cases, the bank has to board up the foreclosed home because of damage that the occupants inflicted on the property. The signage in the yard might read “Bank-Owned” or “REO” (real estate owned), making it clear that a foreclosure has taken place. The yard goes into disrepair, and the home is abandoned for months, or even longer. Over time, the property becomes an eyesore for the neighborhood. It is almost impossible to sell that house at or close to market value for the size and location.
So it’s clear that a foreclosure’s value is influenced by the circumstances surrounding the transaction. But how about the other homes in the neighborhood? When property appraisals take place, three different approaches can come into play. One is the cost approach. This uses the cost of erecting the property as well as the land’s value. The market value approach looks at three comparable transactions in the neighborhood. Square footage and proximity are used to determine whether a sale is comparable or not, and foreclosures are eligible to be used for comparable sales.
This means that foreclosures can harm property values in the rest of the neighborhood in a couple of ways. The first is that if a foreclosure is clearly visible through signage, potential buyers for other homes in the area will make reduced offers, if they make offers at all, because of the perception that the neighborhood has negligible value. Also, when appraisals take place from the buyer’s end, including foreclosure prices in the comparable transactions will justify lower offers. So either way, foreclosures can influence the value of properties.
Are you shopping for an investment property, or do you just want a great deal on a home? Give one of the investment specialists at Amansad Financial a call. We can connect you with lists of foreclosures in your area and with agents who will walk you through the purchase process.