Dealing w/ Sellers that Owe A Lot in Back Taxes

[Alvin Grier]

We've had wholesale deals where we've had private sellers that owe a lot in back taxes (as I'm sure you have as well).

Anyways, in order to close on their homes via Warranty Deed, as many of our buyers prefer, the taxes need to be taken care of at closing.

What we've been running into, is sellers that expect to walk away with nearly the entire purchase price as well as have us take care of their back taxes.

So for example, if the selling price is $30k, and they owe $20k in back taxes, they expect to leave the closing table with $30k in their pocket, and have the buyer pay the $20k in back taxes, which usually just flat-out isn't going to happen.

I've done some reading on the Internet on the topic to see how other wholesalers deal with this issue, and I've found two perspectives:

1. Be upfront with the seller from the beginning, and let them know that the taxes are going to reduce the amount they're going to leave the closing table with (which is what we've been doing up to this point), or

2. Don't tell the seller that they're going to leave with less money than expected, and allow them to be surprised at the closing table, when they look at the HUD (which risks the chances that the seller will get up and walk out at the closing table).

I was just interested in bringing this up on this forum to get some perspective from some of you guys on how you have or would approach such a situation.

Being upfront with the seller is the route we've went up to this point, however this obviously reduces the amount of deals that reach the closing table.

It seems that some are of the opinion that it's up to the seller to be savvy enough to know what they're going to leave the closing with, so I was wondering what you guys thought.

Thanks for your feedback and time.