What Happens When Lenders Pay Off Back (Property) Taxes?

[Ibrahim Hughes]

Hi everyone. I'm pretty familiar with how tax liens and tax foreclosure works here in my state of New jersey. But one question I have that kind of baffles me is, what happens when a lender jumps in and pays off the delinquent property taxes?

I understand that most mortgage payments today include monies that get forwarded to the municipality to pay off any due quarterly taxes. But I also see a few situations where properties are in tax foreclosure and in danger of being lost to tax foreclosure. There might be a small mortgage on the property where the tax payments are not included in the mortgage payment for whatever reason. The lender will then have to jump in and pay off those back taxes or risk losing the collateral that secures its loan.

Does the lender then seek to obtain the entire amount paid for the back taxes from the borrower? Or does the lender take the amount it paid and break it down into even payments included in the now increased mortgage payment? Anyone with knowledge or experience in this area?

[Minna Reid]

I've worked with a ton of sellers with back due taxes (escrowed and not). Almost every time the lender simply pays it and adds it to the past due balance. I have never seen the lender actually pursue foreclosure over this, but the municipality eventually will.