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 Iowa, the county treasurer can sell your property (or a percentage of it) at a tax sale. However, you'll have some time to pay off the debt and get the property back after the sale.
In Iowa, property taxes are due two times per year, on March 1 and September 1. (Iowa Code Ann. § 445.36.) You get a one-month grace period before 1.5% interest per month kicks in. (Iowa Code Ann. § 445.39.)
If the taxes remain unpaid after April 1 or after October 1, they're considered delinquent. (Iowa Code Ann. § 445.37.) A property can be sold at a tax sale when taxes are delinquent.
Tax sales in Iowa are public auctions. But instead of selling the home to the highest bidder, the winning bidder is the person or entity willing to pay the total amount due in exchange for the smallest percentage interest in the property. (Iowa Code Ann. § 446.15, § 446.16.)
The sale usually takes place on the third Monday in June unless the treasurer designates a different date. Again, the property is offered for sale to the bidder willing to take the smallest percentage of the property, though not less than 1%, for the total amount of taxes, interest, costs, and fees due. (Iowa Code Ann. § 446.16.)
After the sale, the winning bidder gets a certificate of purchase. (Iowa Code Ann. § 446.29.)
Before the sale, the county treasurer must provide notice by mail and publication.
Notice by mail. The treasurer must mail you a notice not later than May 1, unless May 1 is a Saturday or Sunday, in which case the notice may be mailed on the first business day in May. (Iowa Code Ann. § 446.9.)
Notice by publication. Before the sale, the treasurer must also publish one notice in a newspaper at least a week, but not more than three weeks. (Iowa Code Ann. § 446.9.)
Within 15 days after the sale, the county treasurer must send you a notice that the property was sold at a tax sale. (Iowa Code Ann. § 446.2.)
In most cases, you'll get one year and nine months, called a "redemption period," after the sale to redeem the property. (Iowa Code Ann. § 447.9.) ("Redeeming" the property means reclaiming a home you would otherwise lose through the tax sale process.) Sometimes the redemption period is shorter, like if the home didn't sell at a previous tax sale or in the case of certain abandoned properties. Talk to a lawyer to find out the redemption period in your specific situation.
Also, a person with a legal disability may redeem through a court action within one year after the disability is removed or through legal representation at any time before the deed is delivered. (Iowa Code Ann. § 447.7, § 447.8.)
After the redemption period expires, you get another 90 days to redeem the home. This extra time happens because, once the redemption period ends, the person (or entity) that holds the certificate of purchase must mail you a notice about your right to redeem expiring. This notice gives you an additional 90 days to redeem. (Iowa Code Ann. § 447.9, § 447.12.)
If you don't redeem by the end of the 90 days, your right to do so expires. The certificate holder will then get a deed to your property and become the new owner. (Iowa Code Ann. § 448.1.)
To redeem your property after an Iowa tax sale, you must pay the county treasurer:
After the new owner receives the deed, you might be able to get your Iowa home back by filing a court action. You must have a basis for the action like you didn't get proper notice about your right to redeem expiring. (Iowa Code Ann. § 447.8.)
If you want to file a lawsuit to get your home back after the new owner receives a deed to the property, you'll most likely need a lawyer to help you.
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" are used interchangeably.)
Because a property tax lien has priority, the tax sale 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, and interest (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 other bills, 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 Iowa 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.