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Payment of property taxes during foreclosure/ bankruptcy
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Question:
Does payment of property taxes during foreclosure/ bankruptcy have priority over the loan?Answer:
Indeed, during the workout phase the lender should give priority to having the borrower bring current any deliquencies in property taxes. In most states deliquent real property taxes are in effect a superlien which can have priority even over the lender's mortgage. The tax deliquencies cannot be negotiated down and there is not much hope to reduce the tax assessments through tax protests or assessment complaints. Further, many lenders do not have the staff to pursue any available remedies. Penalties or interest for the delay in the payment of taxes are usually high, such as up to 18 percent annually. If the borrower is failing to pay real property taxes this is a red flag to the lender that the borrower either has poor judgment or is in financial difficulty.
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