People who own real property must pay property taxes. The government uses the money these taxes generate to pay for schools, public services, libraries, roads, parks, and the like. Typically, the tax amount is based on a property's assessed value.
When homeowners don't pay their property taxes, the overdue amount becomes a lien on the property. A lien effectively makes the property act as collateral for the debt. All states have laws that allow the local government to sell a home through a tax sale process to collect delinquent taxes.
So, if you don't pay your real property taxes in Delaware, the tax collector can sell the property to a new owner at a tax sale. You'll have a limited amount of time to get current on the delinquent amounts both before and after a tax sale.
The taxing authority typically files a petition with the court and gets a judgment that directs the sheriff to sell the home at a public auction. This type of tax sale process is called a "monition" method. (Del. Code Ann. tit. 9 § 8721.)
Before the sale, the sheriff will post a notice on your home or on some prominent part of your property. The notice gives you 20 days to get current on the overdue taxes, including penalties and costs. (Del. Code Ann. tit. 9 § 8723, § 8724.)
If you fail to get caught up, the court will issue a writ that directs the sheriff to sell the home at a public sale. (Del. Code Ann. tit. 9 § 8725.)
Delaware is considered a tax deed state. The tax sale is a public auction where the home is sold to the highest bidder.
After the sale, the department of finance or the chief county financial officer generally must approve the final bid. For this approval to occur, the notice of the sale must include a statement that the sale is subject to this type of approval.
If the department of finance or the chief county financial officer doesn't approve the final bid from the sale, another sale will be held.
In Delaware, you can get your home back (redeem it) within 60 days, called a "redemption period," after the day the court approves the sale. (Del. Code Ann. tit. 9 § 8729.)
You can get your home back by paying:
In a monition sale, you usually pay this amount to the purchaser of your home. But you can pay the required amount to the court if:
If you don't redeem, the purchaser from the sale may then petition the court for an order approving the sale and directing the sheriff to sign and deliver a deed to them. The purchaser then becomes the new owner of the home. (Del. Code Ann. tit. 9 § 8728.)
If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly payment to pay the property taxes. The servicer then pays the taxes on your behalf through an escrow account.
But if the property taxes aren't collected and paid through this kind of account, you must pay them directly.
If your loan isn't escrowed and you don't pay the property taxes, the loan servicer might pay any delinquent taxes and then bill you for them. Here's why: Property tax liens almost always have priority over other liens, including mortgage liens and deed of trust liens. (For purposes of this discussion, the terms "mortgage" and "deed of trust" mean the same thing.)
Because a property tax lien has priority, if your home is sold through a tax sale, the process wipes out any mortgages. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this sale from happening. The servicer will then demand reimbursement from you, the borrower.
The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don't reimburse the servicer for the tax amount that it paid, you'll be in default under the mortgage's terms.
The servicer can then foreclose on the home in the same manner as if you had fallen behind in monthly payments.
After demanding repayment of the amount it paid for the taxes, penalties, plus interest (and assuming you repay this debt), your servicer will probably set up an escrow account for the loan.
Each month, you'll have to pay approximately one-twelfth of the estimated annual cost of property taxes—and perhaps other expenses, like insurance—along with your regular monthly payment of principal and interest. This money goes into the escrow account.
The loan servicer then pays the cost of the taxes and other escrow items on your behalf through the escrow account.
Many mortgages have a clause that allows the lender to establish an escrow account basically at any time it chooses. The servicer establishes and manages the account on the lender's behalf.
To find out if and when the lender can set up an escrow account for your loan, read your mortgage contract and any other relevant documentation you've signed, like an escrow waiver.
The downside to having an escrow account is that you'll have to make a bigger monthly payment to the servicer. On the positive side, having an escrow account saves you from having to come up with a large amount of money when tax bills, and possibly others, are due.
If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay.
Talk to a foreclosure lawyer, tax lawyer, or real estate lawyer if you're facing a tax sale in Vermont and have questions about the process or need help redeeming your property,
To learn more about property taxes and other aspects of homeownership in general, get Nolo's Essential Guide to Buying Your First Home by Ilona Bray, J.D., Attorney Ann O'Connell, and Marcia Stewart.