In the case of failure to pay property taxes, a tax lien can be placed on a specific property. A tax lien certificate is issued to the state, and it can then be sold to an investor and a trust via public auction. A tax lien certificate earns interest at a set rate – and since they are connected to a hard asset (real estate), they are an attractive investment and are sure to generate income.
If you have been unable to pay property taxes and find yourself facing a tax lien foreclosure, contact us via form below and we can offer you the resources needed to delay your foreclosure and possibly keep your house. Now, let’s take a closer look at what can trigger a tax lien foreclosure and what it entails.
The County Charges Property Taxes Yearly
Owners of real property are obligated to pay property taxes at least once per year – or, depending on the county, twice per year. The gathered taxes pay for services such as libraries, parks, schools, and more. The amount of property tax that a homeowner has to pay depends on the house’s assessed value.
It is common for a servicer to include property taxes in the monthly mortgage payments – and then pay those taxes on behalf of the homeowner via escrow. But if this is not the case, the homeowner is responsible for paying the property tax bill on their own.
The County Starts a Foreclosure if Any Property Taxes Are Unpaid
After a homeowner has failed to pay property taxes for a certain number of years, the county will start the foreclosure. The specific number of years depends on the state in which the homeowner resides. For instance, New York’s Real Property Tax Law states that the county may start a foreclosure after two years of property tax delinquency.
The County Provides Notice of the Court Hearing
Before the county can sell your home, it must provide you with a court hearing notice 30 days in advance. The notice must include the date, place, and time that the hearing will take place. When you attend the hearing, you will have the opportunity to make your case to the judge. If you do not take steps to halt the foreclosure, the county will auction off the tax lien.
How Does a Tax Lien Foreclosure Work?
If a tax lien foreclosure takes place, the lien certificate is brought to auction. Bidders can compete to win the certificate – and, upon a winning bid, the bidder will be placed foremost on the property title. They will be listed before trust deeds, mortgages, and the majority of all other private liens (with the exception of state tax liens).
Thus, by winning the certificate, bidders are paying off the property owner’s property tax debt. The homeowner is then responsible for paying back the debt and any accrued interest to the winning bidder. If the homeowner fails to pay back their debt to the purchaser, the purchaser then has the right to foreclose the property. But, if the homeowner pays off the lien and interest in a pre-specified amount of time, they are able to keep the home.
Can I Prevent a Property Tax Foreclosure?
Currently (as on September 2020), all foreclosure proceedings have been paused in New York, due to the severe economic impact of the ongoing coronavirus pandemic. This moratorium was put in place in March of 2020 and was extended in August of 2020. There are ways that you can delay or stop a property tax foreclosure after the foreclosure moratorium has ended. If you find yourself facing this obstacle, read on to find out your options.
Redemption Period for a Tax Lien Foreclosure
In most cases, the delinquent homeowner will have the right to a redemption period. This is a period of time, typically one to three years, in which they are able to pay the tax and interest back to the lien purchaser. Interest rates depend on the state or the jurisdiction. For instance, in Nassau County, the maximum interest and penalties that a tax lien may carry is 10%. This went into effect in 2016, and it is only applicable to tax liens that were purchased after 2001.
Options to Avoid Unpaid Property Tax Foreclosure
If you would like to stop a property tax foreclosure altogether, you have several options.
Establish a Repayment Plan with Tax Assessor
Some tax collectors will give property owners the opportunity to set up repayment plans. Collectors are not required to provide this option – and, when they do, the repayment period is usually brief. However, it can be an excellent solution for homeowners who have the means to pay off their tax liability in one year or less. Keep in mind, though, that if the county has already initiated the foreclosure proceedings, you may not have access to this option. To see if any payment plans are available to you, contact your tax assessor.
Contest Your Tax Assessment
It is possible to reduce your property tax bill by contesting your house’s assessed value. To do so, follow these steps:
- Read your assessment letter thoroughly. Procedures for contesting the appraised value are usually listed on the back of the letter.
- Double-check the data. Does the letter measure the size of the lot correctly? Did they miscount the number of fireplaces? Every detail matters; you can easily contest the tax assessment if you find an error.
- Compare the tax assessments of nearby homes that are of similar size, style, and condition to yours.
- Contact your local assessor’s office and present your case. You will typically be notified of their decision in writing.
- If you don’t like the outcome, appeal the assessment to an independent board.
Apply for a Tax Deferral
If you (or your spouse) are 65 or older, you can apply for over-65 tax deferral. Similarly, if you are a disabled property owner, you can apply for tax deferral. Both cases will stop the property tax foreclosure proceedings immediately.
File for Bankruptcy
You can choose a bankruptcy as a way to stop foreclosure process. By filing for Chapter 13 bankruptcy, you may be allowed to pay all previously due taxes over the course of three to five years. Filing for Chapter 7 bankruptcy, on the other hand, will simply halt the foreclosure proceedings for a while.
Both forms will lower your credit score by a significant amount, and they will remain on your credit report for 7-10 years. What’s more, interest on the delinquent property taxes will continue to accrue during the bankruptcy process. Be sure to account for this when deciding whether or not to file for bankruptcy.
What Happens If You Don’t Pay Your Property Taxes?’
If you fall behind on property tax payments, the governing authority has the right to carry out a tax deed sale or a tax lien foreclosure after a certain number of years. You can either lose your home or be stuck paying property tax after foreclosure to the lien purchaser. To stay ahead of property tax payments, we recommend keeping a close eye on your assessments and contesting them if you see errors.
Tax Lien Foreclosure vs. Tax Deed Sale
If a property owner fails to pay required property taxes, there are two potential outcomes that government authorities may pursue. The first is a tax deed sale, which grants the property ownership to that government body. The government agency is then able to sell the property and collect unpaid taxes. The other outcome is a tax lien foreclosure, which has already been covered in detail.
Whether you are going through a tax deed sale or a tax lien foreclosure, you can contact us for a free consultation.