Legal Mortgage & Property Taxes: What Buyers Need to Know

A new procedure is being implemented to protect property buyers from inheriting tax debts from previous owners in real estate transactions. The process, detailed in a recent notice, allows for the consignment of 10% of the transaction value – or a lesser amount with tax authority approval – to a notary or direct payment to the state, effectively extinguishing any existing tax liens against the seller that relate to the property.

The measure addresses a situation where buyers could become liable for unpaid taxes – including income tax, wealth tax, corporate tax, property tax, and inheritance tax – accrued by the seller. Currently, an unfulfilled tax obligation tied to a property can legally transfer to the new owner. This new procedure aims to mitigate that risk.

The process involves completing a specific attestation form, available online, which is then submitted to the tax authorities. According to documentation, the consignment effectively eliminates the legal claim the state has through a statutory lien, ensuring the buyer is not responsible for the seller’s prior tax liabilities.

While the practice of a statutory lien existing on properties with unpaid taxes is well-established, the new procedure offers a clear path for buyers to secure themselves against assuming those debts. The statutory lien, as defined by authorities, guarantees the state a priority claim on the proceeds of a property sale to cover outstanding tax obligations.

The move comes as governments increasingly seek to streamline property transactions and provide greater certainty for buyers. In Quebec, for example, a similar system exists where a legal hypothec can be registered against a property for unpaid taxes, and can apply to both real and movable property like vehicles or boats. The process of removing a hypothec once a debt is settled requires a formal application to the land registry.

The consignment procedure is not mandatory, but it provides a safeguard for buyers who wish to avoid potential complications arising from the seller’s tax situation. The costs associated with the consignment, including notary fees and registration costs, are typically borne by the buyer.

The implementation of this procedure is ongoing, and further details regarding specific requirements and procedures are available through notaries and legal professionals specializing in property law. The government has not yet indicated a timeline for evaluating the effectiveness of the new process.