When we are approaching that time of year when County and City Tax Authorities post and send Property Tax Bills. You should be aware of the issues presented by the “gap period” – that time between when the tax bills are posted and the date which they are due.
As Closing Attorneys, we generally represent the Lender. An essential function of our legal duty is to ensure that the Lender’s Security Interest will have priority over any other claims, including property tax liens.
Though we cannot eliminate all the inherent problems, there are certain things we can do to minimize the negative impact. This is an important matter that you must consider when calculating Net Sheets, prepping your sellers and scheduling your closings.
1. If tax bills are “out”, we must generally collect for them at closing.
a. Under Georgia law, property taxes become a lien on the property as of the due date.
b. Since a Property Tax Lien has priority over a Mortgage, Lenders generally require us to collect any amounts due if the due date is within 90 days of the first payment date of the mortgage. This is why most Lenders prefer escrow accounts.
2. ESCROW ACCOUNTS: Lenders generally wait until the last second to disburse funds from Escrow Accounts to pay taxes. This is where we run into the most frequent “double payment” problems.
a. If we can verify that taxes have been disbursed by the Lender, but we cannot verify receipt by the taxing authority, SOME lenders MAY waive collection of taxes on the HUD IF we secure coverage from the Title Insurance Company.
b. If we cannot verify disbursement by the Lender, we MUST collect taxes at the closing.
i. If the Lender disburses escrowed taxes prior to receipt of the payoff of their loan, the taxing authority will credit the first check received, and return the second check to remitter, who will then refund this amount to the mortgagor. This can take several weeks, if not longer.
ii. If the Lender receives payoff prior to disbursement of the escrowed taxes, they will refund the full escrow amount to their mortgagor. This usually happens fairly quickly.
3. NO ESCROWS: If the property owner does not have an escrow account, they should NOT pay the tax bill without speaking to us first.
a. If they must pay the taxes to avoid late charges, they should pay them IN PERSON and obtain a RECEIPT for payment. If they just write a check and put it in the mail, we CANNOT accept this as proof of payment.
b. We run into problems when the property owner will need the entire proceeds of this sale for a subsequent purchase of another property. In such case, the property owner may chose the lesser of two evils by delaying payment until closing, accepting the late charges, but avoiding the time lapse of “double payment”.
Thank you to McManany | McLeod | Heller, LLC for this valuable information!