Q: I bought a home in 2013. I received free and clear title to it. However, this week I was served with papers for foreclosure because of the previous ownersâ€™ nonpayment of back taxes. It appears the town failed to disclose the tax amount when researching the deed. Do I have any recourse? Itâ€™s over $6,000.
A: Yikes. Time to dig out the ownerâ€™s title insurance policy we hope you bought when you purchased the home.
Youâ€™ve just given us an excellent example why every homeowner should purchase an ownerâ€™s title insurance policy when they buy a home. It has now been six years since your purchase, and youâ€™re only now finding out about a problem with the prior ownerâ€™s nonpayment of real estate taxes on the home.
An ownerâ€™s title insurance policy should cover your loss should you decide to pay the unpaid real estate taxes. Youâ€™ll have to follow the specific requirements listed on the title insurance policy to notify the title insurer of your claim on the policy so that they can either defend you against the tax collectorâ€™s office or write a check for those back taxes.
An ownerâ€™s title insurance policy is there to protect an owner against claims and issues that existed prior to the date of the policy and that surface or become known after closing. Weâ€™re talking about title issues, and not home inspection or quality issues. For example, forgery in the conveyance documents, liens that become known after closing, and, as you found out, real estate taxes that should have been paid prior to closing but were not.
Letâ€™s say your title insurance policy showed that all real estate taxes were paid and current on the day you closed on the home. Six years later, you find out that the information given to you by the title insurance company on their title report was wrong, for whatever reason. The title company should bear the responsibility for that mistake and make you whole. There may be exceptions to this rule, but, in general, the title company should be responsible.
Having said all that, if you didnâ€™t get an ownerâ€™s title insurance policy when you bought the home, you are going to have to pay the bill or risk losing the property. Or at least, you will have to go to the county office that is sending you the bill and make a thorough investigation to make sure the bill is legitimate and not duplicative or in error.
This is on your shoulders to do, and we suggest you get at it quickly. There could be a chance that the billing is wrong or could be less than initially stated, but you’re going to have to spend the time researching the issue with the governmental office that sent you the bill (and maybe others).
If youâ€™re lucky, you might find that the bill is much less or they made a mistake in sending it to you. On the other hand, the bill amount might be accurate, and youâ€™ll have to pay it. In some states there are attorneys or other services that work with homeowners to contest real estate taxes. You might want to contact them and see if they can help you navigate the process. Unfortunately, if they charge a fee and the bill is right, you could end up paying even more than the amount of the taxes that is owed. Good luck.
Ilyce Glink is the author of â€œ100 Questions Every First-Time Home Buyer Should Askâ€ (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.