County property-tax arrears can still allow a Home Equity Conversion Mortgage when the default can be cured at closing and residual income can support a LESA if the history requires one. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. This page is eligibility with county arrears, not a plan to use leftover cash for next year’s installment.
Take a 70-year-old named DeShawn in Stockton with a county tax default, a house he still occupies, and a treasurer demand that is still redeemable. That payoff is a closing-line item. It is not a reason HUD invented a “tax default is illegal” slogan. 24 CFR 206.25 treats required payoffs as mandatory obligations. 24 CFR 206.205 still requires property charges after the old default is gone.
A HECM is FHA-insured. It is not a government benefit and it is not a county tax-sale rescue.
Must county property-tax arrears be paid at a HECM closing?
Usually yes, when the arrears still attach to the house. Title must be marketable. Unpaid county property taxes are a prior charge. Before the new HECM deed of trust records, the closer pays the treasurer from proceeds, or you bring cash to the table. That is the 24 CFR 206.25 stack, the same family of payoff as an existing first mortgage. A verbal “about four thousand” is not a closing figure. Get a current written demand. Penalties move.
A tax default that is still a redeemable county lien is a different file from a tax sale that has already transferred title. If the county has already sold the tax-defaulted property, you no longer have a house left to mortgage. 24 CFR 206.35 requires the borrower on title. A completed tax sale is not a HECM rescue. A tax-sale cloud belongs with a title attorney, not with a counseling session.
Split the two “tax” words before anyone mixes the worksheets. County property tax is what this page is about. An IRS income-tax installment is a different file. A Flagstaff household that is current on an IRS installment but behind on county property tax has two separate problems. The IRS draft hits residual income. The county arrears hit title and the mandatory-obligation stack. A LESA, if required, holds future county taxes and insurance. LESA does not pay the IRS. See paying property taxes from proceeds when the live question is using leftover cash for current bills after you are already current. This page is whether you can originate while the county is already owed.
Walk through DeShawn’s order. Pull the Stockton treasurer demand the same week as counseling. Confirm occupancy under 24 CFR 206.39. Run residual income after the first-mortgage coupon would disappear and after the county payoff is treated as a closing use of the principal limit. Read whether that default history will force a fully funded LESA. Model leftover cash after the county payoff and any LESA before you treat a “yes, we can cure it” as a large check.
After the tax payoff, leftover cash still comes from the mid-30s to low-50s percent of appraised value, depending on age and expected rate. Paying Stockton tax arrears does not raise the 2026 claim-amount cap of $1,249,125 that Mortgagee Letter 2025-22 set for the year. Curing a county tax default at the table does not reduce the 2.00% initial MIP of maximum claim amount in Mortgagee Letter 2017-12, and the 0.50% annual MIP of outstanding balance still accrues after the treasurer is paid. The treasurer payoff is a mandatory obligation; origination is still capped at $6,000 under 24 CFR 206.31. After the treasurer is paid, an adjustable HECM still accrues at 1-month CMT plus lender margin.
How can a tax-default history force a fully funded LESA?
Mortgagee Letters 2014-21 and 2014-22 tell underwriters to weigh residual income alongside the property-charge history, including tax default. A recent county tax default is the opposite of a clean history. Many of those files close only with a fully funded Life Expectancy Set-Aside. That set-aside withholds estimated future county taxes and hazard insurance over HUD’s life-expectancy term. Opening cash drops. See how a LESA is built for what dollars freeze.
A fully funded LESA after a county tax default is origination-only and does not pay the IRS. It cannot be added after closing. A promise to “pay them from Social Security next April” does not replace the worksheet. If residual income still fails after a LESA is sized, the tax-default file is a denial, not a longer lecture.
The Flagstaff contrast matters because people mash the two tax words together. Current on an IRS installment means the Internal Revenue Service is being paid on a plan. Behind on county property tax means the Coconino treasurer is still owed. HUD will not treat the IRS plan as proof the county bill was paid. Title will not treat an IRS installment as a recorded county lien. Keep those exhibits in separate folders.
24 CFR 206.205 keeps county taxes as a lifetime duty after closing. 24 CFR 206.27 can make the loan due and payable if property charges fail later. Curing last year’s Stockton default does not forgive next year’s installment. A LESA can pay the estimated county bill if one was built. It does not create a holiday if values move and a shortage letter arrives.
A tax-default file can still close in about 30 days after a complete package. A stale treasurer demand is how that clock breaks. A tax-default file still pays $125–$175 for counseling, and that certificate still dies 180 days later if the treasurer demand or the LESA worksheet stalls the close.
California Civil Code section 1923.2(k) still adds seven days after counseling on a Stockton file. An Arizona county-arrears HECM skips that Civil Code clock and still needs 24 CFR 206.41 counseling. A treasurer’s sale date can consume the 180-day counseling-certificate shelf life before the HECM can record. Start title and the demand the same week as the counselor.
Proprietary notes Jay originates in California — HomeSafe, Longbridge Platinum, Finance of America, and Mutual of Omaha Secure Equity — do not create a county tax holiday. They are not FHA-insured. Private credit boxes still want the arrears cured if the new lien must sit first.
Who should not originate a HECM just to stop a tax sale?
Do not originate if the county tax sale has already transferred title. There is no HECM on a house you no longer own. I will not book counseling as a rescue slogan. Do not originate if the only plan is to beat a sale date that lands inside California’s seven-day wait and the 180-day certificate, with no written demand and no residual-income path.
This path does not help a household whose residual income fails even with a LESA so large that leftover cash cannot fund the reason they called. I will say the math fails rather than charge 2.00% initial MIP for a token line. It does not help someone who wants a HECM only to park a large unused line while ignoring the next county installment. Unused HECM capacity is not a tax escrow after closing unless a LESA was built at origination.
It does not help a household that is current on county property tax and only behind on the IRS, and that came to this page by searching “back taxes.” Send that file to the IRS-installment conversation, not to a county-arrears worksheet. Mixing those two tax words is how people bring the wrong demand to closing.
What can go wrong: the HECM pays the old Stockton default, the homeowner treats the new loan as a tax holiday, and the next installment goes unpaid. Or the LESA estimate is short because assessed value moved, and a shortage letter arrives anyway. Or someone spends leftover cash the first month and has nothing for the installment the LESA did not cover. Or a Flagstaff family brings only the IRS agreement and is surprised when title still shows the county lien.
After a tax-cure HECM, heirs who keep the house still repay the outstanding balance under 24 CFR 206.125(a)(2)(i). Curing county arrears at origination does not rewrite that heir payoff into a 95-percent slogan.
A follow-up: does non-recourse erase county taxes you fail to pay while you live there? No. After an allowed sale, 24 CFR 206.27(b)(8) limits a deficiency on the HECM debt versus the house; it does not erase a county tax sale that already happened. It does not forgive a county tax lien you let accrue. Occupancy is still 24 CFR 206.39. An empty house with a county tax problem is two fails, not one.