When you buy a home, you expect full disclosure of all liens and debts assessed against it. It can be a shock to find that a previous owner did not pay all his taxes. However, it happens. While you're not personally liable for old unpaid taxes on your property, you may still wind up having to pay them.
You may be liable for any unpaid property taxes that a previous owner failed to pay. Title searches performed prior to a closing typically reveal any unpaid property tax, although this is not a fail-safe, but title insurance protects you against loss.
Property Tax Liens
When taxes on a property have not been paid for a certain period of time, local government puts a tax lien on it. This means first that property cannot be legally transferred without the permission of the lienholder, and second that if taxes are not paid, the lienholder can ultimately confiscate and sell the property to recoup tax debt. Unfortunately, it is not always clear in the record at the time of sale whether there is a lien or outstanding liability on a property; often, properties without clear titles are transferred.
Title Searches Identify Unpaid Taxes
In most cases, a title search conducted before the property is transferred will locate any liens, unpaid taxes or title problems. If any turn up, you should refuse to close the sale until the owner has paid or cleared each issue. As added insurance, each issue should be noted in the sales contract, with the previous owner's written certification that each was cleared.
Property Title Insurance
Because title search companies are not necessarily legally liable if they do not find an issue with your title, you can purchase title insurance on the property before purchasing it. This unique form of insurance protects you against loss in case there are unfound stakeholders in the property. Unlike most insurance, title insurance is not an indemnity. Instead, the insurance company conducts a very thorough title search of its own, protecting you from losses stemming from past liens.
Title Insurance Legal Recourse
Sometimes even a title search does not turn up tax liens. If you purchased title insurance, you are covered. If you didn't purchase insurance but a title search was performed, you may be able to sue the party that certified your title as clean. In this case, however, you will almost certainly have to retain a lawyer, and you may still have to pay the tax lien in the interim to ensure your house is not confiscated by the government.
Moreover, title insurance was invented because the government found that erroneous professional opinions from title companies did not necessarily mean they were at fault. In other words, there's a good chance you would lose the case. If the outstanding tax bill is small, it may be cheaper and simpler to pay it yourself and chalk one up to experience.
- Title search - Wikipedia
- What is Title Insurance? | First American
- Consumer Financial Protection Bureau. "What is owner's title insurance?" Accessed August 1, 2020.
- Old Republic Title. “What Is Title Insurance and How Does It Work?” Accessed May 22, 2020.
- Zillow. "What Is Title Insurance and Do I Need It?" Accessed August 1, 2020.
- GovInfo. "Public Law 93-533-Dec. 22, 1974," Page 1728. Accessed August 1, 2020.
Jamie Wilson has written online content for over a decade on a wide variety of subjects. Currently, she is the Augusta Military Lifestyles expert for a prominent website. She is also a published fiction writer and experienced Web designer working on a Master of Fine Arts in creative writing.