Foreclosure Taxes
We usually think of foreclosures as the end product of not paying a mortgage. But in a somewhat weird way it’s also possible to be foreclosed for other reasons.
For instance, in many communities the water company is actually a governmental agency. Don’t pay your water bill and there can be a lien against the property, Don’t pay the lien and the property can be foreclosed. Think about it the next time you take a shower….
And then, of course, we have property taxes. Fail to pay your property taxes and your house can be sold at auction to pay the debt.
Foreclosure Taxes
Taxes take precedence over any other claims. This is the reason why lenders want to escrow money each month from those who buy with less than 20 percent down. Lenders absolutely want to assure that property taxes are paid because otherwise their security for the loan — the house — could be at risk.
The deal with property insurance is a little different. Don’t pay your property insurance and you will be in violation of your mortgage agreement. Break your mortgage agreement and…you guessed it, you can be foreclosed.
Lenders also escrow money to pay property insurance premiums for those who purchase with less than 20 percent down. Again the reason is to protect the lender’s security. The lender does not want the house to burn down if only because the security for the loan will then have a reduced value.
I used to think that borrowers were better off paying their own taxes and insurance so they could control the money and perhaps get some interest, but now I prefer to have the lender collect the money each month as part of the mortgage payment. Why? Property taxes have turned into huge bills and it’s easier from a budgeting perspective to pay a little each month rather than a huge amount when taxes are due.
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