Property Taxes in Bankruptcy

Treatment of property taxes depends on when the taxes were incurred.  The general rule is that they can be eliminated if they are over one year old.  Even if your taxes are not over a year old, you may not have to pay them because your lender or any new owner will usually pay them.  Usually, in San Diego County, your lender, or the new owner after foreclosure, will bring the property taxes current to avoid a tax sale.

Can I Include Property Taxes in Bankruptcy in San Diego?

In order to include property taxes in bankruptcy in San Diego, they must be more than one year old.  More specifically, property taxes are discharged (eliminated) in San Diego bankruptcy cases if your case is filed more than 1 year after the date that your property tax first became due.   If it has been less than one year since the taxes first became due, in most cases you will still avoid paying them because either: (A) your lender will cure them and add them to your mortgage loan payments; or (B) you will get rid of your home and the new buyer will pay them so that the county does not conduct a tax sale of the property.  So, like most taxes in bankruptcy, property taxes can be eliminated in bankruptcy.

Lender Adding Property Taxes to Loan

Under California law, property taxes are a first position lien against your property, in front of all mortgage lenders.  That means that in San Diego County, property taxes are a lien in front of your home loan, even if they are for years after you took out your home loan.  If you don’t pay your taxes owing on your property in San Diego, the County Tax Collector typically will not sue you.  Instead, the Tax Collector will hold a tax sale and sell your property at auction sale.  Because a tax sale would wipe out your mortgage lender’s lien, your mortgage lender will, in most cases, pay your past due taxes and then add them to your loan payments.  If you don’t pay your lender back for the taxes that it paid on your behalf, your lender will foreclose on your property or simply add the amounts paid to your loan balance.  In most cases, the lender will foreclose.

New Buyer

If you are filing bankruptcy in San Diego and no longer want to keep your property, you will either sell it, do a short sale, or let your lender foreclose.  Either way, the taxes owing on your property will remain a first position lien against the property until they are paid by someone.  If you sell or short sale your home, then as a condition of the new buyer’s home loan, the new lender will require it to obtain a loan sufficient to bring the taxes current.   If you let your home go to foreclosure, the lender who foreclosed will usually pay the taxes.  If it doesn’t, then the new buyer of the property will pay the taxes, either as a condition of its new loan or if it is a cash buyer then it will pay them to avoid a tax sale.  

Tax Sale

If nobody pays the property taxes (not your lender, not a new buyer, etc.) owing on your property, then the County Tax Collector will conduct a tax sale.  However, this rarely happens in San Diego County, because there will usually be a buyer or other interested party who wants the property.  Before the Tax Collector can do a tax sale, somebody will usually pay the taxes owed on the property.

This entry was posted in Taxes.


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