Delinquent Property Taxes

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Property taxes are often paid through an escrow account established by the mortgage lender. This means that the borrower must pay additional funds for property taxes to the lender along with the principal and interest as part of the monthly payment. In recent years, many borrowers have found it difficult to keep up with their mortgage payments and, as a result, property taxes may go unpaid.

In other cases, homeowners are supposed to pay their property taxes separately from the mortgage. However, when faced with economic difficulties, they may decide to stop paying their property taxes. What happens when a homeowner is delinquent in paying property taxes? Read on to find out.

What Happens When Property Taxes are Delinquent?

All states have statutes that permit counties to place a lien on property with delinquent property taxes. Under most state laws, property tax liens are granted first lien status and are superior over other liens, including mortgages, regardless of whether the mortgage was recorded before or after the tax lien.

Once the property taxes are delinquent for a sufficiently long time, the taxing authority will initiate a tax sale. A list is recorded in the county records that names the taxpayer, the property, as well as the amount of tax due, and the list will often be published. The taxpayer will receive some form of notice of the tax sale, but in most jurisdictions no judicial action is required.

In some jurisdictions, the property itself is sold at the tax sale to the highest bidder. In other states, the purchaser does not buy the property itself but receives a certificate of purchase; once the redemption period expires, the purchaser obtains title to the property. Other jurisdictions sell tax certificates that allow the holder of the certificate to foreclose the tax lien. And in other places, the taxing authority simply executes its lien by taking the property.

How to Save a Home if Property Taxes are Delinquent

There are several ways to prevent a tax sale of property, other than just paying off the full amount of the delinquent taxes. It is possible to:

  • Object to the assessments. State and local law will provide a procedure for a homeowner to challenge the amount of a tax assessment and reduce the tax liability. There are mainly two grounds to contest an assessment. First, the taxpayer can assert that the assessment exceeds the property’s taxable value, meaning its value has been assessed incorrectly. Second, the taxpayer can argue that the property has been disproportionately assessed, meaning that the assessment is higher than assessments of comparable properties in the area. Once the assessment has been reduced, the homeowner may have an easier time paying off the property tax debt.
  • Seek abatement, a deferral, or a compromise. Each state has exemptions and abatements that reduce at least a portion of the tax liability for some taxpayers. For example, tax liability may be reduced due to a taxpayer’s age, disability, income level, or personal status (such as the surviving spouse of a firefighter or police officer). Some states will also defer property taxes if the taxpayer proves they suffered a financial hardship. However, a deferral may not be available once the taxes have become delinquent. Alternatively, a defaulting taxpayer may be able to negotiate a lower liability with the taxing authority. The taxing authority may agree to waive penalties and interest or give the taxpayer additional time to pay off the delinquency.

After a tax sale has occurred, the homeowner may be able to redeem the property. Redemption is the right of the property owner to reclaim the property by paying the entire sale price, plus certain additional costs and interest, after the sale so long as it is within the time period allowed by statute. Generally, the purchaser at the tax sale acquires its interest in the property subject to redemption by the former owner. If the taxpayer does not redeem within the prescribed time period, then the purchaser acquires clear title to the property.

Usually, a property will not go to tax sale if there is a mortgage outstanding on the home. This is because the lender will often advance amounts to pay the property taxes to ensure that their lien is not wiped out in a tax sale. Most mortgages contain a clause that allows the lender to then add these advanced amounts to the total debt that the borrower owes the lender.

When to Seek Counsel

The process for a tax sale varies from state to state. If you are facing a tax sale, you may want to consult with a competent attorney who can advise you of your rights as well as actions that can be taken to prevent the loss of your property. For help on finding and hiring an attorney, see our article on Hiring a Lawyer to Fight Your Foreclosure.

Updated by: Joshua Levenson

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