Peter, who was facing foreclosure himself, asked, “I am six months behind on my mortgage payments. I just got the tax bill for 2010 in the mail. Should I pay it?”
Peter asked me what the consequences would be if he didn’t pay his mortgage. He wondered if his home would be auctioned to pay the taxes.
Here is the answer to Peter’s Question: It all depends on what his plans are and how tight he is on money.
Most people in Peter situation fall into one of 3 categories.
Category A. They want to keep their home. These people are usually already working on a loan modification with their lender to save their home. They might even be working a second job in order to save up as much money as possible.
Category B. They don’t want to keep their home. They might be thinking about a short sale or deed-in-lieu of foreclosure.
Category C. They cannot afford to keep their home, but want to stay there as long as possible. They might have bought an expensive home and now are no longer making enough money to afford it. Still, they can afford to rent a smaller, less expensive home.
By the way, here’s some additional background on Peter. He is facing a Florida foreclosure. According to Florida state statute, the county can’t auction his home to pay the taxes for at least two years. And usually, it’s 5 to 7 years before that actually happens.
So Peter has a long time before he absolutely must pay back that tax bill. And usually, the lender will pay the tax bill for you. But why would they do that, you ask?
By paying the tax bill, they are protecting their interest. If the house gets sold at auction, the lender’s first mortgage may get wiped out entirely.
To prevent that, they will pay back taxes and tack it onto what you owe them.
Plus, in Florida, a lender’s failure to pay your tax bill could cost them big bucks. The interest rate on delinquent property taxes in Florida is 10-18%. That can rack up pretty fast.
Here was my ultimate recommendation to Peter for how he should handle his tax bill:
If he falls into Category A: Pay the tax bill as soon as possible AFTER your loan mod is approved. But before he does that, Peter should try to negotiate a successful loan modification with his lender.
Most lenders want a “good faith down payment” to modify a loan. So until the modification goes through, Peter saves all his money for that.
In the event that the loan modification is not approved, Peter will have wasted money paying the taxes. It will be just one less payment for the bank after they foreclose.
If he falls into Categories B or C: Do not pay the tax bill. The lender will end up paying the bill after they foreclose. Or, it will be paid as part of a short sale. That’s not something Peter needs to concern himself with if he doesn’t even plan to keep the home.
Thinking about a short sale? I can help you short sale your property and never pay the bank another penny.
Thanks for reading this,
Thierry is a Real Estate Agent at RE/MAX Premier, and Host of Talk Radio’s, ‘Inside Real Estate’
Phone: (703) 322-0600.
Thierry is an advocate for Homeowners in Distress. Thierry has made it his personal mission to help as many people as possible avoid foreclosure and keep their home.
Thierry Roche specializes in loan modifications and short sales in Fairfax Virginia. Fairfax Loan Modification Help. Fairfax Short Sales. Fairfax Short Sale Realtor. Fairfax County Short Sale Realtor. Fairfax VA Short Sales. Fairfax Realtor.
Copyright 2011 Inside Real Estate, LLC. All Rights Reserved.
This is not intended as legal, technical, or tax advice. Please speak with a licensed professional before making any decision. Information is deemed reliable but not guaranteed as of the date of writing. The views expressed here are Roche’s personal views and do not reflect the views of RE/MAX Premier. This information is provided as a courtesy to our viewers to help them make informed decisions.