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Know the Liabilities Of Buying Distressed Property

Q: I bought a foreclosed home in Agoura in 2010. I just received a letter from the county threatening to take my land due to unpaid taxes from 2006. Do I have to pay these?

A: If you bought the house subject to all liens (known or unknown), you might well owe these back real estate taxes.

Unknown liens are a huge danger for those home-buyers purchasing foreclosures and short sales. With foreclosures, the bank supposedly takes back the property, satisfies all the liens, and then resells the property with “clean” title.

With a short sale, the buyer may purchase a property subject to all liens and matters that may affect the title to the home. In some cases, a buyer in a short sale could be responsible for the payment of unpaid real estate taxes, contractor’s liens and homeowner association fees and dues.

Frequently, purchasers of foreclosed homes buy them on their own without the assistance of a Realtor . In some cases, they buy these homes without purchasing an owners title insurance policy. A buyer of a foreclosed home must make sure that they obtain good title to the home they are buying. They must make sure that all prior unpaid real estate taxes have been paid or satisfied. They must also make sure that all other claims against the property have been wiped clean in the foreclosure.

People often don’t understand the difference between a short sale, a foreclosure and an REO (real estate owned) property.

In a short sale, the seller is a person that is selling the property for less than what he or she needs to satisfy all of the costs of the sale, including paying off the lender. If you buy a short sale and are not careful, you may find yourself buying the home and having to pay expenses that were unpaid by your short sale lender.

If you buy a foreclosure, you should be buying the home at the courthouse steps and may have to clean up title issues that were unresolved in the foreclosure. A foreclosure generally wipes the slate clean of most liens and other matters that affect the title to a property. A foreclosure will generally not get rid of easements and other agreements that affect a home but will get rid of mortgages and other claims of lien that affect the home, including money owed to homeowner’s associations.

However, in some cases, real estate taxes are not wiped out when a property goes through foreclosure. If you are buying a foreclosure, you must know what can and will affect the title to the home you are buying.

Finally, an REO property is a property that generally has gone through foreclosure and is now owned by the bank. You should treat an REO property in the same manner as a property owned by a seller, but you should make sure that the bank has paid all fees and expenses from the time they took title to the property through the date of your purchase. In addition, you’ll want to make sure that all real estate taxes are current on the home.

Did you hire a  Realtor to go over the details of your purchase and help negotiate? If you did, go back to him or her and have a discussion about this issue and find out what you need to do to resolve it.

Just know that if the taxes did not get paid and the lender in the foreclosure did not have an obligation to pay them, you are going to have to pay them. Get moving, because it’s possible that the county will sell your home for back taxes owed right away.

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