All local governments impose property taxes on homeowners to finance county and municipal services. Property taxes help pay for things like police and fire services, public schools, and utility services. Your municipal or county government has a big stake in collecting property taxes so it can meet its budget. Local governments do not look kindly on homeowners who don’t pay their property taxes, and they have some incredibly powerful collection tools that ensure that property taxes will be paid sooner or later—including selling your home.
Interest and Penalties Will Accrue
If you don’t pay your property taxes when they're due, your local taxing authority will start charging interest on your tax account. This interest typically accrues monthly. You may also incur monetary penalties. This means that the total balance you owe to your local government will begin to steadily increase. At some point, your local government may even publish notice of your delinquent taxes in your local newspaper.
A Tax Lien Will Be Placed On Your Home
The next thing that will happen is that a property tax lien will be placed on your home and recorded with the county recorder. A lien is a notice attached to your property informing everyone that you owe the someone money, in this case the taxing authority.
A property tax lien usually has priority over all other liens. The effect of this lien is that your home can’t be sold until the property tax bill is paid. The lien is a cloud on your title and a buyer can’t get clear title to your home until the bill is paid and the lien lifted. So you can forget about selling your home and walking away from your unpaid property taxes.
You Could Lose Your Property in a Tax Sale
If you continue to be delinquent in your property tax payments, your taxing authority will schedule your home for a tax sale, which is like a foreclosure. This can play out in different ways.
Your taxing authority can simply sell your home at a tax sale and give the deed to the highest bidder at the sale.
Alternatively, the taxing authority may sell the tax lien instead of selling your home. The purchaser of the lien pays all the tax due. You now owe the investor, not your taxing authority. If you continue not to pay, the purchaser can file a petition with the court to foreclose on your property and take ownership of it. You usually have a period of years before this last step occurs, but during this time more property taxes continue to accrue.
Often, your mortgage lender will buy the tax lien, rather than allow it to go to a third party. This is because if your home is sold at a tax sale the mortgage will be wiped out. This doesn't get you off the hook, however. Your lender will add the taxes to your mortgage balance. If you can't make the payments, your lender might foreclose on your property.
In most states, you can buy back your home after a tax sale by paying the buyer what he or she paid for the home (or by paying the taxes owed), plus interest. In most states you can buy back your home up to one year after a tax sale. However, different time periods may apply in some states.
You Have Options
If you fall so far behind on your property taxes that you receive notice of a tax sale, speak with an attorney as soon as possible. Depending on where you live, you may have a number of options.
For example, some taxing authorities allow you to request an abatement of your taxes due to economic hardship. An abatement means all or part of your property taxes are forgiven, and you're in no danger of a tax sale or foreclosure. However, you must prove to your taxing authority that you have only enough income to meet your basic living expenses (like house payment, lights, heat, and food). If you have many unnecessary expenses in your budget, or you have a great deal of equity in your home and could sell it, your taxing authority may deny your request for an abatement.
You may also be able to apply to your taxing authority to enter into a payment plan, allowing you to pay what you owe in installments over time. Again, you may have to prove financial hardship to have a payment plan approved.
Some states and local governments have special programs to help financially struggling or senior homeowners who can’t pay their property taxes. This may include low-interest loans or grants. Some states also have property tax deferral programs that require you to pay only a specified percentage of your annual household income for property taxes, with the state paying the remainder.
You can also apply for a loan to pay your property taxes. These loans may be obtained from a bank or a property tax lender. Property tax lenders specialize in lending money to pay back taxes. However, many such lenders charge extremely high interest rates.
A Tax Lawyer Can Help
The law surrounding failure to pay your property taxes is complicated and varies from state to state. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a tax lawyer.