During the due diligence phase of a commercial acquisition, your title service team will inspect countless aspects of the property and its ownership to facilitate a smooth purchase. It’s not uncommon for different issues to be discovered during this process, and if they aren’t resolved properly, these problems can end up tanking the sale. One issue that tends to arise with foreclosed properties or ill-maintained commercial assets is the existence of a tax lien.
A tax lien or tax liability shows that the current property owner has unpaid tax debt associated with the property. Most commonly, this is in the form of unpaid property taxes, but if you are working to acquire a business in addition to property, it’s possible the business has been delinquent with paying their required sales taxes on their goods. Regardless of its exact form, if you are working to acquire a commercial property that has an existing tax liability, you need to take some additional steps to ensure the sales process proceeds as expected.
Acquiring Commercial Property With a Tax Lien
The main reason why it’s important to discover that a prospective property has a tax liability on it is because that problem becomes your problem if left unresolved through the acquisition. For example, if the previous owner owes $10,000 in unpaid property taxes, and the lien is not resolved before the sale is complete, that liability remains with the property, not the original property owner, and now it becomes your liability. Nobody wants to take on someone else’s debt because they rushed into a purchase.
Hiring a title service team is essential because one of the first things they’ll do is research a property to look for the existence of any tax liens. If they are discovered, they’ll walk you through your options, which typically include:
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Bringing the liability to the attention of the seller to ensure the lien is paid off prior to purchase.
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Lowering your purchase price to account for the liability if you plan on absorbing the liability.
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Negotiating new terms with the seller that account for the existence of the tax lien.
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Walking away from the sale if a compromise about the lien cannot be found.
Finally, although your title service team will do everything in their power to discover tax liens and ensure they are accounted for prior to your purchase, you can protect your purchase and ensure any tax liens that are discovered after your acquisition are not your problem by purchasing an owner’s title insurance policy. A title insurance policy offers coverage for any unpaid liens that were not known to the buyer at the time of the acquisition. This can be a very smart purchase if you are purchasing old property, foreclosed property or an asset with limited paperwork or murky records. Never worry about a surprise tax bill if you work with a title insurance company and secure a title insurance policy at the time of purchase.
For more information about buying property with an existing tax liability, or for assistance with a different aspect of commercial property acquisition, reach out to the team at Commercial Partners today at (612) 337-2470.