What the Contract Says:
The GAR® contract addresses tax appeals under Paragraph B.3.c. Prorations. It says:
Buyer and Seller will settle up between themselves when the appeal is resolved.
The appeal is assigned to the Buyer once it closes and the Buyer assumed responsibility for the taxes.
GAR® Forms 2023
Non-GAR® contracts rarely address tax appeals at all.
Reality of the Effects of a Tax Appeal on a Closing
Tax appeals are a title issue. When taxes are appealed, the owner gets the option of only paying 85% of the bill until the appeal is resolved.
All of the title companies require an exception on the Owner’s Title Policy for any taxes under appeal. The closing attorney will normally require a signed hold harmless that states the closing attorney cannot and will not be responsible for confirming the Buyer or Seller fulfil their obligations to pay any amount that may be due when the appeal is resolved.
What Can Happen After Closing?
Downsides for the Buyer:
1. The county only issues a bill for 85% of the original tax bill, leaving 15% unbilled and unpaid. If the tax appeal result does not reduce the bill by at least 15%, the county (and city if applicable) will issue a bill for the remaining amount that is now due. The Buyer will have to contact the Seller and request payment. If the Seller does not pay their portion of the bill, the Buyer will have to use the court system to pursue payment. This will cost time and money, particularly if the Seller lives in another state.
2. The result of any tax appeal has the potential to raise the taxes if the county determines that the assessment was too low. That means that the Buyer will have to pay the unbilled 15% plus any additional amount due and pursue the Seller for payment of their share.
3. The appeal may reveal past unpermitted additions to the Property. This can result in penalties and/or a revocation of the certificate of occupancy until the additions are inspected which may require fully exposing plumbing and electrical, etc. for inspection. This happens if the tax assessor comes to the property to verify the claims made in the appeal about what the property does and does not have.
4. The Owner’s Title Policy will contain a special exception for the tax appeal. Neither the title company nor the closing attorney will take any responsibility for paying taxes that were not due at the time of the closing.
Downsides for the Seller:
1. Any lien for unpaid taxes will attach to the Property but will also list the Seller’s name on the lien since the bill is issued under the name of the person who owned it on January 1 of the bill’s year.
2. Many Sellers do not realize that the result of the appeal can actually be an increase in the tax bill. They will owe the majority of whatever the county bills after the tax appeal is resolved.
3. Although the contract says the Buyer accepts the tax appeal (if using the GAR® contract), it also says that the Seller will convey "good and marketable title" at closing. That is defined as title which is insurable by a title company licensed to issue title insurance in the state of Georgia at regular rates and with no special exception. Tax appeals require a special exception on the Owner's Title Policy. This is an ambiguity in the contract which may result in a transaction falling apart if the Buyer does not want to accept less than good and marketable title and the Seller is not willing to lift the appeal.
Can the Seller Cancel Their Appeal?
The short answer is yes.
The longer answer is that they will need to make the request of the tax assessor. It will take time for the appeal to be cancelled. Once the assessor cancels the tax appeal, that information will be sent to the tax commissioner. The tax commissioner then needs to update their system and issue a bill for the remaining amount which will now be due. How long will it take for two different government offices to process the cancellation and update the bill? Great question. The answer will differ based upon the county involved, their staffing and how much work they have on their plate.
Can Agents and Buyers Check to See if the Property Taxes are Under Appeal?
Yes. Look up the {County Name} tax assessor online and search by the address or parcel ID number. Every county may look a little different but below is a sample of the Fulton County assessor site.
You can see that an appeal was filed for 2023 by looking under the Appeals History.
You can also see the details of the tax appeal. It shows the value the county gave the property and what the homeowner said that the property was worth.
So What Should Buyers and Sellers Do?
Expect a lot of properties with tax appeals.
We expect that many homeowners, including this author, have appealed their property taxes this year. It is hard not to when the county increases your tax assessment 25% in a single year. Additionally, successful tax appeals freeze the value for 3 years which is very tempting.
Compare the offer price and the assessed value.
If the sales price will be higher than the assessed value, the tax appeal is highly likely to fail. It will take months for the tax appeal to process and in the meantime, the tax assessor will be told that the property sold and the sales price. I would not expect them to approve an appeal if they assessed it for less than what the Buyer paid. Given the other potential issues, request the Seller remove the tax appeal as part of the contract negotiation.
Consider everyone's best interests when cancelling the tax appeal.
The Seller may not want to cancel their tax appeal until all of the Buyer contingencies have passed. This is particularly true during any due diligence period since the Buyer can terminate the contract for any reason or no reason during this time.
Make sure the Buyer fully understands what they are assuming if they accept the property with a tax appeal in process.
The Buyer may well want to let the tax appeal go forward if the tax assessment is more than what they are paying for the property. This does not mean that the tax appeal will be successful. Technically the assessment date was January 1 so it is the value on that day, in the assessor's opinion, that will be used. Buyers need to understand that not all of the original bill has been paid and they will need to feel comfortable that their Seller will fully cooperate after the closing if additional money is owed.
Final Thoughts . . .
Closing attorneys hate tax time and expect this year to be particularly unpleasant. Many of us are also homeowners so please have no doubt that we understand your feelings about the tax assessments this year.
Make sure that everyone is aware of whether a tax appeal is in process and understand how the process works. They need to know what can happen after the closing and what their obligations will be.
Good luck everyone!
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