Q&A: Clear Chain of Title

Q: When selling their home, is the seller responsible for paying the back taxes or tax liens? I have always assumed that they would be.

A: Short answer: YES, to both. More accurate answer is: Depends on whether the seller is an individual or an entity.

Individual sellers of real estate are required to provide a clear chain of title and that requires that any back taxes or tax liens would have to be satisfied prior to or at the closing. In order to demonstrate that there are no outstanding debts against the property, the seller signs a vendor’s affidavit which affirms that there are no outstanding obligations which have not been paid. Additionally, they provide the purchaser with a general warranty deed further guaranteeing that a clear title has been conveyed.

Buyer Beware—Bank-owned sellers

The use of the word ‘their’ in the question above indicates you are talking about buying a home from an individual rather than an REO (bank-owned property) from an insurer such as HUD, VA, Fannie Mae or Freddie Mac. While these insurers (as well as other guarantors) are required to pay back taxes and Federal tax liens before they transfer title, they are NOT required to cover all liens and consequently you will most often receive what is called a “special warranty deed”, “sheriff’s deed” or “trustee’s deed”. Irrespective of what it is called, any of these types of deeds will be transferring “marketable title” but not necessarily “clear title” to you. You owe it to yourself to get clarity on all the words highlighted in this section before you purchase a home which is being offered for sale by an institution rather than an individual.

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