Realtor Tip 13: Short Sales and Property Taxes

Making sure that property taxes have been accounted for is an important part of the short sale process. In a well-negotiated short sale, the lender should pay all the property taxes, including back taxes.

If the homeowner did not escrow their property taxes and has not been paying them, in some cases the bank will have already paid them. If the bank has not paid them, they will need to be paid at closing. The county, city and school district will not waive those taxes.

To ensure that the lender that is being shorted pays the property taxes, you need to identify those taxes up front when you send the initial HUD-1 or Net Sheet. This way, the bank can take into consideration what is owed during the short sale negotiation. If you fail to give the correct amount of taxes due on the HUD-1 or Net Sheet, you will have to address the issue at the end of the short sale process, because the approval letter will be for an amount less than what is shown on the HUD-1 or settlement statement.

When completing the HUD-1, Net Sheet or settlement statement, be sure to identify any back taxes, as well as the taxes that are due for the current year. We suggest you overestimate the current year’s taxes. For example, if the property taxes on the house are $1200/year ($100/month), rather than estimating that it will take you 4 months to do the short sale, assume that it will take twice as long and ask the lender to cover 8 months of taxes.

In the end, if the short sale did take you only 4 months, the bank approval letter will list 8 months of taxes. The bank will receive additional money at closing, the short sale will go through smoothly, and everybody walks away happy.

If you have any questions about calculating property taxes for a short sale or need additional assistance with the short sale process, please call us at 972.342.0011.

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