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 Vermont, the tax collector can sell the property to a new owner at a tax sale. Fortunately, you'll have some time to get current on the delinquent amounts both before and after a sale happens.
Tax bills are generally mailed to property owners 30 days before the due date. If the due date falls on a weekend or a holiday, the taxes are usually due on the following business day. (Vt. Stat. Ann. tit. 32 § 4772.)
Within 15 days after the expiration of the due date for your property taxes, the town treasurer will issue a warrant in the amount of the unpaid taxes. This warrant remains in effect until the taxes on it are paid or otherwise discharged. (Vt. Stat. Ann. tit. 32 § 4793.)
The treasurer then delivers the warrant to the tax collector. (Vt. Stat. Ann. tit. 32 § 4793.) If you don't get caught up on the delinquent amounts, the tax collector will probably sell your home at a tax sale, though it has a few different routes it might use to collect the overdue amount. (Vt. Stat. Ann. tit. 32 § 5252.)
Before a tax sale, the collector must mail you a notice about the upcoming sale, as well as publish and post notice of the sale.
Notice by mail. The tax collector will mail you a notice by certified mail, return receipt requested:
If the notice by certified mail is returned unclaimed, the collector resends the notice by first-class mail or personally serves it to the taxpayer. (Vt. Stat. Ann. tit. 32 § 5252.)
Notice by publication. In Vermont, the tax collector must publish notice in a newspaper for three weeks before the sale. (Vt. Stat. Ann. tit. 32 §§ 5252, 5253.)
Notice by posting. The tax collector must also post notice of the tax sale in at least one public place in the town. (Vt. Stat. Ann. tit. 32 § 5252.)
The tax sale consists of a public auction where the collector sells the home to the highest bidder. The highest bid must equal or exceed the amount of the outstanding taxes, costs, and fees. (Vt. Stat. Ann. tit. 32 §§ 5254, 5255.)
Not less than 24 hours before the tax sale, the property owner may request that a portion of the property, rather than the entire property, be sold to pay off the debt. The request must:
If the portion the taxpayer identifies can't be sold for the tax and costs, then the entire property may be sold. (Vt. Stat. Ann. tit. 32 § 5254.)
If no one bids an amount equal to the taxes, costs, and fees, then the city or town can purchase the home (Vt. Stat. Ann. tit. 32 § 5259.)
If you lose your home to a Vermont tax sale, you can redeem it (get it back) within one year after the sale. (Vt. Stat. Ann. tit. 32 § 5260.) To redeem your home, you must pay the purchase price plus interest at the rate of 1% per month from the sale date until the date you redeem. (Vt. Stat. Ann. tit. 32 § 5260.)
The purchaser gets a deed (title) to your home if you don't redeem before the redemption period expires. (Vt. Stat. Ann. tit. 32 § 5261.)
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, if your home is sold through a tax sale process, the sale 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 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 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.