Seller or Buyer: Who Bears the Burden of Past Due Property Taxes?

The question of whether the seller or the buyer is responsible for any past due property taxes on a property is an important one in real estate transactions. This article aims to clarify the responsibilities and processes involved in the transfer of property taxes during the closing process.

Responsibility in Texas and the USA

In Texas and in most states and cities in the USA, property taxes are attached to the property, not the owner. This means that the new owner is responsible for the property taxes when they come due, even if the taxes accrued while the property was under the seller's ownership. However, the closing process often includes a prudent step to address this concern, which is the responsibility of the title company and a common practice.

Proration and Closing Process

It is a standard practice for the title company to prorate property taxes for the portion of the year by the closing date. This is usually done at the closing or before, ensuring that the seller's share is deducted from the proceeds and that the buyer is informed about the amount they will need to cover. The title company provides a detailed breakdown during the closing to ensure transparency.

Standard Contract and Title Insurance

The standard contract in Texas typically includes a provision where the seller credits the buyer an amount of money for the estimated prorated property taxes. This credit is deducted from the purchase price, and the buyer pays the full amount when the taxes come due. Title insurance is another layer of protection that the buyer can opt for, as it helps to identify and address any liens or unpaid taxes before the closing.

The Role of the Title Company and Escrow

The title company plays a crucial role in managing the funds and ensuring that the taxes are prorated fairly. They act as the intermediary between the buyer and seller, making sure that any past due taxes are paid off and the appropriate amounts are accounted for during the closing. If the buyer chooses to go through the escrow process, the title company will handle the payment of past due taxes.

Responsibility Without Title Insurance or Escrow

While the title company and the escrow process help to mitigate the risk of unpaid taxes, there are cases where the buyer may be responsible for past due property taxes. If the buyer fails to discover the past due taxes during the due diligence process, they may find themselves responsible for these unpaid amounts. In such cases, the buyer should carefully review all documents and disclosures to avoid any surprises.

For additional security, buyers are advised to perform a thorough property tax reconciliation before finalizing the sale. This process involves checking the property tax records, reviewing the tax bills, and ensuring that there are no past due taxes or liens attached to the property. By doing so, buyers can ensure a smooth and legally sound transaction.

Finally, it is important to note that while the seller credits the buyer for estimated prorated property taxes, the absolute responsibility for past due taxes remains with the buyer if the taxes accrue after the closing date. Buyers should also be aware of the consequences of non-payment, such as potential legal action by the state or county to recover the unpaid taxes.

In conclusion, while the seller is typically responsible for the proration of property taxes at the closing, the buyer is ultimately responsible for the taxes that come due after the purchase. Proper due diligence and a comprehensive understanding of the closing process can help minimize any potential risks and ensure a successful real estate transaction.