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 Maryland, the tax collector can sell your property at a tax sale.
However, you'll get fair warning before a tax sale and the chance to get your home back afterward. Under Maryland law, most people get at least six months to reclaim (or "redeem") the property even after someone else buys it at a tax sale.
If your property taxes remain delinquent for a sufficiently long amount of time, your property will be sold off in a tax sale. (Md. Code Ann., Tax-Prop. § 14-808.)
At the tax sale, which is a public auction, the property will usually be sold to the highest bidder who is willing to pay at least the total amount of all taxes due, together with interest, penalties, and expenses related to the sale. (Md. Code Ann., Tax-Prop. § 14-817.)
After the sale, the winning bidder gets a certificate of sale (basically, a tax lien certificate). (Md. Code Ann., Tax-Prop. § 14-820.)
But the winning bidder can't get ownership of your home right away. Maryland law establishes a waiting period, called a "redemption" period. During the redemption period, you can pay off the debt. The certificate of sale acts as evidence of the winning bidder's interest in the property during the redemption period.
If you don't pay off the delinquent taxes during the redemption period, the purchaser will foreclose your right of redemption and get title to your home.
The collector must mail you a notice at least 30 days before publishing a notice about the sale. The notice must have a statement that the property will be sold if the arrears aren't paid within 30 days of notice. (Md. Code Ann., Tax-Prop. § 14-812.)
The tax collector must also publish a notice in a newspaper that includes, among other things, the date and place of the sale. (Md. Code Ann., Tax-Prop. § 14-813.)
If you want to stop a Maryland property tax sale from happening, you must pay the overdue amounts. Again, you'll get a notice saying that the property will be sold if the arrears, interest, and penalties aren't paid. (Md. Code Ann., Tax-Prop. § 14-812.)
Within 60 days after the tax sale, the collector must send you a notice by mail that includes information about the sale and about your right to redeem the home following the sale. (Md. Code Ann., Tax-Prop. § 14-817.1.)
If you lose your home to a tax sale in Maryland, you can redeem it at any time before your right of redemption is foreclosed. (Md. Code Ann., Tax-Prop. § 14-827.) But if you don't redeem, you'll lose the home to the person or entity that bought it at the tax sale.
The purchaser must generally wait six months before foreclosing your right of redemption. (Md. Code Ann., Tax-Prop. § 14-833.) But the certificate of sale is void unless the purchaser starts an action to foreclose the right of redemption within two years of the certificate's date. (Md. Code Ann., Tax-Prop. § 14-833(c)(1).)
So, Maryland homeowners typically get at least six months after the sale to redeem the home. However, in Baltimore City, the redemption period is nine months from the sale date for owner-occupied residential properties. (Md. Code Ann. Tax-Property § 14-833.)
And the redemption period is reduced for some abandoned homes and certain homes in need of repair. Talk to a lawyer to get specific information about the redemption period in your situation.
In most cases, you'll get two notices about your right to redeem before the foreclosure starts. (Md. Code Ann., Tax-Prop. § 14-833.)
To start the foreclosure, the winning bidder must file a lawsuit in court. (Md. Code Ann., Tax-Prop. § 14-833.)
The foreclosing purchaser gets a deed to the home after a court enters a decree foreclosing the right of redemption. (Md. Code Ann., Tax-Prop. § 14-847.)
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, a completed tax sale and foreclosure 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 allowing the lender to establish an escrow account essentially 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 and foreclosure in Maryland 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.