The Mortgage Instructions Toolkit provides practical guidance for lawyers responding to lender requests in residential real estate transactions. This page addresses property taxes.

The situation

Lender mortgage instructions may require a lawyer to certify that municipal property taxes are paid in full, with no outstanding taxes owing.

In some municipalities a tax certificate is binding and the only way to be certain of the tax status of a property. However, it can be time-consuming and expensive to acquire the tax certificate, which is accurate only for the issue date.  

Generally, a tax certificate will not reflect recent improvements to the property which have not yet been assessed. The issuance of a tax certificate does not prevent the municipality from imposing supplemental taxes or adding other fees, levies, or charges after the date of the certificate.

Instead of a tax certificate, lawyers may conduct an online search or call the municipality for tax information, then use this information to complete the statement of adjustments. However, online or verbal information is not reliable proof of tax status.

It is unreasonable to ask a lawyer to certify the tax status of a property.

Sample lender instructions

The undersigned hereby certifies that when the advance is made:

1. All Tax Bills issued up to the Interest Adjustment Date will have been paid in full.

Practice guidance

• Give tax information to the lender based on your research without “certifying” that all taxes have been paid in full. In your report, give the source of the information – tax certificate, online search, telephonic or other verbal inquiry – and the date the information was obtained, presumably closing date or as close to closing date as possible.
• Discuss the possibility of requesting a tax certificate with your borrower client when circumstances indicate that a tax search may be inadequate and outstanding taxes may be an issue.

When title insurance is in place

Title insurance will cover an error when you have relied on a tax search or did not make an inquiry pursuant to the insurer’s direction that a tax search is not necessary.

• Discuss not obtaining a tax certificate or making any inquiry with your borrower client.
• Have your client sign an acknowledgement that you explained the option of not obtaining a tax certificate or not making an inquiry and that the client agreed to proceed without the certificate or inquiry and to pay promptly any taxes that may be found due, subject to likely reimbursement by the title insurer. By following this practice, you are protecting your reputation should your client get a tax bill for which the vendor was responsible, even though a title insurance claim would be paid.

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