Would someone explain what happens when a seller ceases to make his mortgage payments and the property taxes and insurance are separate.  Should the seller continue to pay the property taxes?  What is the liability on the taxes when the property goes into foreclosure?  I will be meeting with the client on Sunday.

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I believe taxes trump mortgage, so technically the town can take the house for non-payment, but the mortgage company usually steps up to pay the taxes. That's what I've seen in my area most of the time. The mortgage company will likely pay off the taxes to get the house sold, whether it's a short sale or REO. If they don't, I think the new buyer would have to pay them.

Someone correct me if I'm wrong though.


Smitty said:
I believe taxes trump mortgage, so technically the town can take the house for non-payment, but the mortgage company usually steps up to pay the taxes. That's what I've seen in my area most of the time. The mortgage company will likely pay off the taxes to get the house sold, whether it's a short sale or REO. If they don't, I think the new buyer would have to pay them.

Someone correct me if I'm wrong though.
THANK YOU FOR THE RESPONSE!
Mary,
First, you shouldn't provide advice to the seller on whether to stop paying or not unless you are a practicing attorney.

As for taxes, it is unlikley the County will take the property - the bank will likely either require the seller to either 1) bring cash to closing, 2) have the buyer pay the back taxes; or 3) bank will pay at closing - Caveat::: if the taxes become delinquent - past the pastdue date, the bank will likely pay them and add onto what is owed.

As for insurance, if the homeowner doesn't pay it, the policy will be cancelled and the bank will be notified by the insurance company. The bank will then buy RISK insurance, and add that extravagent cost to the balance due. They will then handle it the same as for taxes above.

Best of luck,

Thom

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