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Don’t Lose Your Right to Collect Unpaid Taxes at a Foreclosure Sale

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Scott A. Chernich & Patricia J. Scott
Banking, Finance & Real Estate E-News
April 15, 2013

Lenders who place a full credit bid can’t recover a deficiency based on unpaid taxes incurred prior to a foreclosure sale according to the decision in Citizens Bank v Boggs.

The question before the court was whether the lender could recover the costs of unpaid property taxes incurred prior to the foreclosure sale, but paid after the foreclosure sale. The lender in this case placed a full credit bid at the foreclosure sale.

The Court of Appeals noted that when a lender makes a full credit bid, the mortgage debt is satisfied and the mortgage is extinguished. The lender argued that since it did not include the unpaid taxes, insurance premiums and escrow amounts, the bid was not a “full credit bid.” The Court disagreed; deciding it was undisputed that the lender’s bid included all outstanding principal, as well as accrued interest and foreclosure costs. The Court stated this is the “quintessential definition of a full credit bid.” 

The Court said that the taxes were not collectible through a post-foreclosure deficiency judgment because the lender should have taken into account the amount of the unpaid taxes when placing its bid at the foreclosure sale. The Court added that because the lender did not pay the taxes before the date of the foreclosure sale, the liability was extinguished by the foreclosure.