If you are looking at multi-family homes in pre-foreclosure in order to grow your property management business, tax issues may come up during the sale process or after you have passed papers. These tax issues could include outstanding real estate tax bills or liens that were not found and taken care of prior to your purchase. In these types of situations, you will be responsible for paying the bills.
What Is Pre-Foreclosure?
A pre-foreclosure is the time period after the lender files a public default notice, called a Notice of Default or Lis Pendens, and before the house goes to auction. During this time, the homeowner can attempt to rectify the debt and retain home ownership, or the house can be sold via a short sale. Most home buyers looking to save a lot of money will look at purchasing a short sale and they understand that this process can take longer than the traditional home-sale process. But what most people don't know is that there could be tax consequences when buying multi-family homes in pre-foreclosure.
Tax Burden Falls On The New Owner
The reason a multi-family home is typically being foreclosed on is that the current homeowner could not keep up with the bills. If the homeowner couldn't afford to make the monthly mortgage payments, there is a good chance that the real estate taxes haven't been paid either. Since a foreclosure is sold as-is, the burden of paying the taxes will fall on you as the new owner. The same goes for any liens that have been placed on the house, for example, from a credit card company that is looking for payments. Again, if there are any liens on the house when you buy it, you will have to pay those liens in order to get the title transferred to you.
Owner-Occupied Multi-Family Home Federal Income Tax Issue
Another important situation that you must keep in mind when looking to purchase a pre-foreclosure multi-family home is that if you are going to live in a portion of the house, you can only claim your residence on your Federal income tax. For example, if you purchase a three-family home and you are living in one of the three apartments, you can only claim one third of the mortgage interest for the property. If you have additional questions about buying multi-family homes in pre-foreclosure and the tax issues that could arise during the transaction, a real estate agent who is experienced in working with buyers of foreclosure properties will be able to help you. Talk to your local experts, such as Sunworld Group Inc., for more information.