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 Rhode Island, the tax collector can sell your property, or part of it, at a tax sale.
However, you'll get fair warning before a tax sale and the chance to get your home back afterward. Under Rhode Island law, most people get at least one year to reclaim (or "redeem") the property even after someone else buys it at a tax sale.
If you get behind in paying your real property taxes in Rhode Island, the tax collector can sell your home, or a portion of the property, at a public auction. (R.I. Gen. Laws § 44-9-8.)
At the public auction, the smallest undivided part of your property, but not less than 1%, or the whole parcel if no person offers to take an undivided part, will be sold to a new owner (the purchaser) for the owed amount of taxes, interest, assessments, and charges. (R.I. Gen. Laws § 44-9-8.)
After the auction, the purchaser gets a deed to your property, subject to your right of redemption (see below). (R.I. Gen. Laws § 44-9-12.)
Before the sale, the tax collector must provide the homeowner with notice by mail, publication, and posting.
Notice by mail. The collector must send you a notice by first-class mail not fewer than 90 days before the sale. The collector must send a second notice by certified mail not fewer than 40 days before the sale. Or the collector must personally serve you notice, not less than 30 days before the sale. (R.I. Gen. Laws § 44-9-10.)
Notice by posting and publication. The collector must also post the notice publicly and publish it in a newspaper. (R.I. Gen. Laws § 44-9-9.)
Notice for people over 65 years old or disabled. If you're 65 years old or over (or if you suffer from a disability), you may designate a third party to receive your notice. You would do so by giving the tax assessor of the name and address of the designated person. (R.I. Gen. Laws § 44-9-10.)
Some states give a homeowner who loses their property to a tax sale a set amount of time, called a "redemption period," in which to pay off the overdue taxes, plus certain other amounts, to reclaim the home following the sale.
To get ownership of your property, the person (or entity) that bought it at the tax sale must foreclose your right of redemption.
In Rhode Island, the purchaser must wait one year after the sale before starting the foreclosure to wipe out your right of redemption. (R.I. Gen. Laws § 44-9-25.) So, the redemption period generally lasts at least one year after the sale.
However, a petition to foreclose redemption may not be filed for five years, though, after a sale of certain owner-occupied property that the Rhode Island Housing and Mortgage Corporation acquires. (R.I. Gen. Laws § 44-9-25.)
To begin the foreclosure, the purchaser files a petition (a lawsuit) with the court. (R.I. Gen. Laws § 44-9-25.) You can redeem up until the purchaser files the petition for foreclosure. (R.I. Gen. Laws § 44-9-21.)
If you want to redeem after that happens, you'll need to go through the court that's handling the foreclosure. (R.I. Gen. Laws § 44-9-29.) If you want to redeem your home during the foreclosure, you should speak to an attorney as early as possible in the process. A lawyer can ensure that you take proper steps to complete the redemption.
Once the foreclosure is final, however, the winning bidder gets a deed to your property (or a portion of it), and you can't redeem. (R.I. Gen. Laws § 44-9-24.) Or, you might, under rare circumstances, be able to vacate the decree foreclosing the right of redemption.
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 Rhode Island 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.