Real Estate Q & A: Real Estate Taxes

Q:  I have a house under contract to sell and there are taxes owed.  Do I need to pay them before closing?

A:  While I am not an attorney or a title company, I have faced this situation many times.  And the simple answer is, not really, the title company will take the taxes out of the sale proceeds.  If however your sale transaction will not have enough in proceeds to pay the taxes, you will be required to bring the funds to closing to cover the taxes.

Some Examples:

We purchased a house in South Kansas City that had $2,000 in back taxes, about 3 years worth and it was going to be going to the tax sale that August.  So as long as we purchased the house and the title company paid the taxes before the tax sale, then we were good.  So at closing we paid our purchase price and out of the seller’s proceeds the title company paid the back taxes and penalties.

If it is a matter of you not wanting to stiff the county and leave unpaid bills out there, then, yes, you should pay the taxes when they are due.  However from a business stand point, you may want to consider what does it cost you to leave the taxes unpaid until closing and what it would cost you to get the funds to pay the taxes.  So say the penalty would be 15 % interest on the unpaid balance and it will cost you 30% to get the money to pay the taxes up front, it is more economical to leave the taxes till closing.

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