Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I'm planning to buy in a new condo development in Maryland that is in the early stages of construction. I may not be able to move in for two years. When do I have to start paying property taxes?
You start paying property taxes when the deed is transferred, or when "a change of ownership of the land" occurs, said Robb A. Longman, managing member of Longman & Van Grack, a law firm in Bethesda, Maryland. "When someone agrees to purchase a condo that is not yet ready for delivery, the purchaser does not fully take possession until closing," he said. Typically, that is upon completion of the condo.
This sounds pretty straightforward. But "there are a few ways in which the buyer may need to address property taxes prior to purchase," said Joshua E. Estes, co-founder of Estes & Gandhi, P.C., a boutique property tax firm in Dallas, Texas.
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First, you will want to verify that no outstanding property taxes are due. This is unlikely with a new condo development, "but the closing officer should still confirm it," Mr. Estes advised. You might not be personally liable for taxes that were assessed before your ownership, he said, "but the taxing authority almost always has the right to foreclose or sell the tax lien to a third party." The property then could be sold to satisfy the outstanding tax bill, he said.
Second, with property taxes prorated between you and the seller, based on the closing date, you should verify when the tax bill is due to determine whether you or the seller are responsible for paying the taxing authority, Mr. Estes suggested. Be sure to check that the tax amount is correct by comparing the tax amount on the closing statement with that on the tax statement, he added.
"These sound like mundane details that should never present problems, but it happens more often than you might expect," Mr. Estes said.
Plus, for most contracts, proration is one of the few contract obligations that survive closing, he said. If the tax bill ultimately moves up or down, you and the seller may need to adjust the amounts that were paid at closing.
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Mr. Longman added another piece of advice: "When purchasing a condo, it’s important to read through the agreement." It’s possible the seller may require the buyer to pay the taxes before the condo is completed. "But this is not tax law but contract law."
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