Important Notice About Property Taxes For Buyer and Sellers of Real Estate

June 2008

RE: Buyers and Sellers of Real Estate in the State of Maine Allocation of Taxes

The 123 rd Maine State Legislature recently enacted Public Law, c.687, An Act To Protect Parties to Real Estate Transactions, to provide the seller of real estate a remedy to repair their credit rating when a lien is placed in their name for unpaid property taxes that the buyer of the property was required to pay.

Maine law provides that the taxable status of all real estate in the State of Maine is established as of April 1; all questions as to ownership, description and valuation must be considered as of April 1 also . It is not uncommon that a purchaser of real estate may agree with the current owner of the property to pay the pro rata or proportional share of the property taxes assessed on April 1 (Title 36, 558). In most instances, the taxes are prorated over the entire fiscal year of the municipality where the property is located. Once prorated, the seller and buyer are both required to pay the appropriate amount of property tax by the prescribed due date. If the sale of a property occurs after April 1, the property taxes for the upcoming fiscal year will be assessed in the name of the seller. In many cases, this assessment will occur beyond the date of the closing and outside the timeframe of the proration of taxes agreed to at a closing, and this is what often leads to disputes over payment of property taxes.

Failure by either party to pay the prorated property tax by the prescribed due date may result in the municipality placing a lien on the property. If you are the seller, a lien may have a negative effect on your credit rating, even if you no longer own the property. If you are the buyer, the municipality may foreclose on your property unless the property tax is paid in full by the prescribed date.

The new law provides that if the buyer knowingly fails to pay the prorated property tax for the current year (or the tax for the coming year that has been assessed to the seller where the sale occurred after April 1) and the municipality places a lien, if the seller pays the delinquent property tax in question, the seller may then recover in a civil action from the party who did not pay the taxes as agreed upon the amount of tax and costs incurred in the releasing of the lien, including reasonable attorney fees.

If the seller prevails in a civil action and record of a lien has been recorded in the seller's file with a consumer credit reporting agency, the lien must be considered inaccurate information if the seller submits to the reporting agency a copy of the court judgment and proof of payment of the property taxes in question.

Whether you are the buyer or seller of real property, you should read the sale agreement and supporting documents carefully to ensure that you understand your property tax obligations and what may happen if the taxes are not paid as agreed upon. You may avoid the unpaid tax situation by agreeing to escrow adequate funds to pay the property tax in full at the time of the closing.

If you believe that a lien has been incorrectly filed against you, contact the Bureau of Consumer Credit Protection to determine the options available for repairing your credit.

Enclosed with this letter is a copy of a guidance document for sellers and buyers of real estate concerning the allocation of property tax payments. This document is being sent to each municipal office, to real estate agents, real estate lenders, settlement agents, the Maine State Housing Authority and any other person the bureau determines is likely to be involved in a professional capacity in the transfer of taxable real property in this State. All those persons should have copies of the guidance document available for buyers and sellers.

A copy of Public Law, c.687, “An Act To Protect Parties to Real Estate Transactions,” has been posted on the Maine Revenue Services web site. Please contact Laurie Thomas at the Property Tax Division at 624-5600 with any questions.

Guidance Document - view a copy of the guidance document

Public Law c.687, “An Act To Protect Parties to Real Estate Transactions” - view a copy of the law