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 get two or more years behind in paying your property taxes in North Dakota, the property will be forfeited to the county through a tax lien foreclosure. Following this process, the county gets a tax deed (title) to your home. It will then sell your home to a new owner at a public auction.
Again, if you don't pay your property taxes, the past-due amount becomes a lien on your home. Each state has a different tax sale process to collect delinquent taxes.
North Dakota is generally considered a tax deed state.
In some places, if the homeowner doesn't pay off the debt, the taxing authority sells the home and the buyer gets a tax deed. (But in North Dakota, the tax deed is forfeited to the county under tax deed proceedings and then sold at a public auction to the highest bidder.)
In other places, the taxing authority sells the tax lien, and the purchaser must foreclose or use different procedures to get a deed to the property.
And sometimes, a tax foreclosure process is used, or the taxing authority simply executes its lien by taking title to the home.
If you don't pay your property taxes in North Dakota for two or more years, the county will personally serve or mail you, depending on the circumstances, a notice on or before June 1 that the tax lien is being foreclosed. (N.D. Cent. Code §§ 57-28-01, 57-28-04, 57-28-05.)
Unless you pay the taxes and special assessments on or before October 1 after the date of the notice, the county gets a tax deed and becomes the new owner of your home. (N.D. Cent. Code § 57-28-02.)
You can stop the process by paying off the tax debt, called "redeeming" the home, at any time between when you get the foreclosure notice and October 1. (N.D. Cent. Code § 57-28-05.)
To redeem, you'll have to pay the taxes, special assessments, interest, penalties, and costs. (N.D. Cent. Code § 57-28-05.)
If you don't pay by October 1, the county auditor issues a deed to county, which then sells the property. (N.D. Cent. Code § 57-28-09.)
In North Dakota, you might be able to buy your home back after the county gets it through the tax lien foreclosure process. To repurchase your home, you'll have to do it before the county sells the home to a new owner. If the county has already sold the home to a new owner, you're out of luck. (N.D. Cent. Code § 57-28-19.)
Once a year, the county holds a sale to sell homes that it acquires through the tax foreclosure process. (N.D. Cent. Code § 57-28-13.) The sale is a public auction where the home is sold to the highest bidder. (N.D. Cent. Code § 57-28-15.)
Notice of the sale will be published in a newspaper and posted at the county auditor's office before the sale. (N.D. Cent. Code § 57-28-14.) But if the county holds on to the property for more than ten years, it can sell the home without providing further notice. (N.D. Cent. Code § 57-28-22.)
To buy your home back from the county before it has been sold to a new owner, you'll have to pay the county:
To repurchase your home, you can pay the total amount due outright, or you can enter into a contract with the board of county commissioners to pay in installments.
How an installment contract works. You must pay at least 25% of the total contract price in cash, and must pay the remaining amount in no more than ten equal installments along with interest. (N.D. Cent. Code § 57-28-19.)
What happens if you don't keep up with the payments. If you don't make one or more of the payments when due, the board of county commissioners may cancel the contract, and all payments you've made are forfeited to the county. (N.D. Cent. Code § 57-28-19.)
What happens if you make all of the payments. On the other hand, if you make all the payments as agreed, the county auditor will give you a deed to the home, which puts the title (ownership) back in your name. (N.D. Cent. Code § 57-28-19.)
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 lien foreclosure and 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 lien foreclosure and sale process in North Dakota 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.