Property taxes are one of the least understood obligations that home owners have – people recognize they have to be paid, but most people don’t realize the special rights that property taxes have been granted under Canadian law.
Let’s start with the fundamentals – property taxes represent a charge on the property being taxed. That means if the taxes aren’t paid they act like a lien or mortgage on the property. Property taxes are effectively a secured debt.
In addition, municipalities have the right to apply payments towards property tax arrears against the most recent taxes first. This may not sound like a big deal, but it can become one if you fall two or three years into arrears. Once a property tax account falls three years into arrears the municipal government has the right to seize and sell the property for property tax arrears. The practical application of the first rule (allowing the municipality to apply payments to the newest taxes first) means that you can never fall three or more property tax years in arrears – if you do the municipality might sell your property.
Now let’s consider what all of this means if a person is considering bankruptcy or a consumer proposal. Since property taxes are a form of secured debt (secured against the property being taxed) they are excluded from bankruptcy or a consumer proposal unless the property to which they are attached is surrendered. When you surrender the property the property tax account will be paid in priority to other liens and charges on the property so the debt will be cleared. If you are keeping the property then the property tax arrears must be repaid or the municipality may exercise their right to seize and sell the property.
If you are considering bankruptcy or a consumer proposal and you have property tax arrears we strongly suggest you discuss all of your options regarding the property and develop a plan to deal with the arrears as part of your overall plan to sort out your financial problems. For advice on property tax arrears and debt problems, talk to a local Bankruptcy Canada trustee today.
My sister is 75 and very ill and very poor. She is 3+ years in arrears on her property tax. The City of Winnipeg has sent her a letter stating they plan to take her house. Can they just throw her out in the street? BTW she also has a reverse mortgage on the house.
Unfortunately, when a person falls three years behind in their property taxes, the municipality has the right to seize and sell the property to recover the taxes. They don’t want to do it, but they also don’t want taxes to remain outstanding. The tax arrears take priority over the reverse mortgage by the way. It may be time to take a hard look at your sister’s situation to see if it make sense to sell the house and move her to assisted living due to her illness. At the very least someone needs to speak to the city and let them know something about your sister’s situation.
I went bankrupt and I understand I owe the taxes on a property I own but it also includes tear down fee water bill. Am I also responsible for the water tear down and interest associated with these charges outside my pure tax and water bill
You are. The municipality has the right to add them to the tax bill and once they do it becomes a debt you have to deal with outside of your bankruptcy.
I property is listed for property tax sale at my local municipality, however two years ago it appears the owner declared bankruptcy and a bank took over the deed. If I was to purchase the property at the tax sale, does the bankruptcy title become cleared and the prior debts don’t become my obligation?
You need to speak to a lawyer about this (we’re trustees). In order to get the property clear of any prior liens the registrants will need to sign-off on the sale. They likely will as it is the only way they’ll recover (some of) their money, but the lawyer handling your purchase will need to confirm all of that.