Escrow Accounts

• Escrow accounts are unique accounts that lenders create to deal with property taxes themselves. In an escrow account, lenders collect a portion of property taxes from homeowners as part of the mortgage payment, and they set this amount aside until the taxes come due. The lender then pays the local government the property tax itself. If a foreclosure occurs but a homeowner manages to keep the house, either through a bankruptcy or other means, this escrow account may be closed, especially if the lender has been paid off or no longer has a claim on the property. In this case, paying property taxes is now the direct responsibility of the homeowner.
  
  

Property Tax Responsibility at Foreclosure Auction

• A foreclosure auction occurs when a court sells the property to the highest bidder and pays the lender the debt due from the mortgage. In this case, possession of the property is immediately transferred over to the bidder -- some auctions even use the actual title to the property and give it the buyer at once. When the bidder assumes possession of the foreclosure, the obligation to pay property taxes goes along with it. The previous homeowner has no more obligation.
  
  

Property Taxes in an REO

• If the foreclosure auction fails or does not occur, the home passes into real estate owned status, or REO, so that it is fully owned by the lender. Once again, because the lender is now owner of the property it must deal with property taxes. When ownership of the property changes hands, the need to pay taxes changes with it, and the borrower is no longer responsible for taxes due in the future.
  
  

Late Property Taxes

• If homeowners have late property tax payments that they have not yet paid before the foreclosure, then it is possible a debt would remain even after the foreclosure. Often lenders will pay overdue tax payments themselves in a foreclosure to remove the claim the government would have to the property as well, simplifying the issue. If the property is transferred to a bidder, the bidder often inherits the overdue taxes as well. But the rules of obligation vary from state to state, and homeowners may have to pay their overdue property taxes if they were already late before the foreclosure occurred.