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Kathy Godin's Blog

By Kathy Godin | Mortgage Broker
or Lender in Raleigh, NC

What Impact Do Unpaid Property Taxes Have on My FICO Score?

Curt’s mother owned a house but he was on the deed.  His mother didn’t want the house and planned to walk away.  How can Curt protect his FICO credit score?

Neither Curt nor his mother lived in the house.  The house belonged to his mother.  She placed Curt on the deed when she bought investment properties.  Curt’s name was not on the mortgage so his concern revolved around the unpaid property taxes.  Both their names appeared on tax bills.

Short term Curt was ok.  Counties don’t routinely report delinquencies to the credit bureaus.  Long term situation could result in negative impact on his FICO credit score.  The issue depended on what happened when his mother walked away from the property.

Typically the county would sell the property at auction to collect back taxes.  Again, this did not get reported to credit bureaus.  Who would buy the property?  Most likely the buyer would be the mortgage company.  To protect their interest mortgage companies want to be in first position.  Since property taxes trump mortgages, the mortgage company would buy the house to erase the back taxes.

After buying the house, the mortgage company would continue to report missed mortgage payments to the credit bureaus.  The eventual foreclosure would also be reported.  Curt’s credit would not be affected since he wasn’t on the mortgage.

Curt’s vulnerability would come if the mortgage company decided to try to collect back taxes from him.  This could result in a judgment against him.  Judgments have a long-lasting negative impact on FICO credit scores.

This is a long shot.  This is an odd situation.  Mortgage companies are swamped with foreclosures and they deal with them in a systematic manner.  The back taxes would not be their main concern.  Curt’s name on the deed would be.  They would need a clear title.  How they deal with this issue would involve Curt.

Curt’s FICO credit score is protected by fact that his name doesn’t appear on the mortgage.  To remove the small risk he faces, Curt could sign over his rights to title to his mother and make sure tax bills with his name on it are paid.  Curt’s mother agreed with this plan.  Title was transferred (not a problem since his name wasn’t on a mortgage), taxes were paid and his mother proceeded with her plan to walk away.

Kathy Godin, Award-Winning Loan Officer and Branch Manager
Prime Mortgage Lending, Inc.
(919) 789-9933
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina

 

Source: MyFICO

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