New law protects buyers and sellers of real estate

    Did you know that if you sell a piece of property in Maine, and the buyer does not pay property taxes the next time they come due, a tax lien may be filed in the Registry of Deeds under your name?     That’s because under State law, if you own the property on April 1st of a given tax year, you are legally responsible for making sure municipal taxes are paid the next time they’re owed—even if you no longer own the property on that tax due date.
    The problem is compounded if the resulting tax lien appears on your credit report, since it will negatively affect your chances to qualify for future loans, and could lead to higher interest rates or even an increase of your insurance premiums.
    If you were not aware of this fact, you are not alone: relatively few Mainers understand that a lien can be filed in their name for up to a year after they sell their property. Fortunately, awareness will increase because of a new law enacted by the Legislature and signed by the Governor, requiring that buyers and sellers of property be notified in writing of their rights and responsibilities when property is sold.
    The Bureau of Consumer Credit Protection and Maine Revenue Services applaud this new measure, which will encourage the buyer and seller to jointly decide how the next property tax bill will be paid. The two parties may agree to escrow all funds in advance and direct the closing agent to pay the taxes when they come due; or they can decide to divide or prorate the amount owed.
    Maine Revenue Services recently mailed sample written notices to each municipal office in Maine, as well as to real estate agents, mortgage lenders, settlement agents, the Maine State Housing Authority and other interested parties. These recipients that conduct mortgage closings are expected to give copies of the notice to buyers and sellers during the closings when the allocation of property taxes is discussed.
    Both parties to the transaction have important responsibilities: the seller must remember to forward any tax bills to the buyer when they are received (such bills are ordinarily sent to the previous owner for the remainder of the tax year during which the sale occurred), while the buyer must pay taxes before the due date.
    While the seller might be faced with a damaged credit report for failing to follow through, the consequences for the buyer could ultimately be worse. That individual risks losing the property if taxes are not eventually paid.
    In addition to generating greater awareness, the new law has some “teeth.” It permits either a buyer or a seller who is harmed by the other’s failure to pay prorated taxes to bring a lawsuit in court for damages. If the court declares one party the winner, that individual can use the court judgment to correct lien references in his or her credit report.
    The bottom line? Buyers and sellers of real estate must be aware of their property tax obligations. This new law will focus attention on the process and will provide a legal remedy if one party is harmed by the other’s failure to hold up their end of the deal.
    William N. Lund is superintendent of Maine’s Bureau of Consumer Credit Protection.