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Sunday, September 2, 2007

Foreclosures and taxes

I've run into the interesting situation lately where some buyers that I've been working with have found some really nice foreclosed homes that they thought that they could buy, only to find out that the taxes put them way over their financing limits. That's particularly true at the low end, where young, first time buyers are perhaps trying to buy more home that they could normally afford by looking at foreclosed homes. They go out and get "pre-qualified" for a mortgage that is right at the top of what they can aford and then start looking for houses at that price.

I have shown lots of foreclosed home that were $300-400K homes a year ago that are now selling in the low $200K's. Sounds like a great deal, and some are - the ones that weren't thrashed by irate previous owners. The kicker that comes into play to prevent some of my buyers from taking advantage of these deals are the property taxes. In Michigan, as I suppose occurs elsewhere, the property taxes continue to be based upon the last appraised value (the one that still reflects a $300-400K home value) and not the foreclosure sale price. So, that deal at $200K may actually bring a tax bill with it as if the buyer paid $400K.

This shouldn't come as a great surprise, since the current taxes are listed right out in public on the MLS tickets. I try to point that out to clients, but many are in their own little worlds with visions of owning this great, new house. It's only when their mortgage person finally totals up the monthly payment, with taxes and insurance included, that they finally realize that another dream has been dashed. I've resolved to be even more diligent, up front with clients to make sure that they understand the tax situation. Local governments aren't likely to give anyone a break on the taxes, since they need the revenues and they hope that new owners will quickly get the places back to the condition that justified the old taxes anyway. So the old saw - "Look before you leap" - now applies to the taxes that your wonderful foreclosure find might have trailing along with it.

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