What Happens If I Don't Pay Property Taxes in Arkansas?

People who own real property must pay property taxes. The government uses the money that 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.

If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly mortgage payment to later pay the property taxes. The servicer pays the taxes on the homeowner's behalf through an escrow account. But if the taxes aren't collected and paid through this kind of account, the homeowner must pay them directly.

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 have delinquent property taxes in Arkansas, you might lose your home to tax forfeiture. But Arkansas law provides several opportunities to pay off the delinquent amounts so you can save your home.

How Does Arkansas Handle Tax Non-Payment?

If you don't pay your property taxes in Arkansas, your home will be forfeited to the state one year after the taxes were due.

How Long Can You Go Without Paying Property Taxes in Arkansas?

The deadline for property taxes in Arkansas is October 15. (Ark. Code § 26-37-101.)

The county collector holds on to your tax-delinquent home for one year after the date of the delinquency. If you don't get caught up on the past-due amounts by what's called the "certification date," which is no later than July 1 of the following year, the county collector transfers the home by certification to the Commissioner of State Lands. (Ark. Code § 26-37-101.)

Is Arkansas a Tax Lien or Tax Deed State?

The Commissioner is the official in Arkansas responsible for selling homes that have been forfeited to the state for non-payment of real property taxes. When the Commissioner receives the certification, the state automatically gets the title to the home. The Commissioner can then sell your home to a new owner. (Ark. Code § 26-37-101.)

Arkansas is generally considered a tax deed state.

Penalties for Not Paying Property Taxes in Arkansas

You'll have to pay certain penalties if you don't pay your property taxes. For example, a penalty of 10% is charged on delinquent property taxes in Arkansas. But if the penalty of 10% is less than $1.00, the penalty is set at $1.00. (Ark. Code § 26-26-201.) You'll also probably have to pay an advertising fee.

Publication Before Certification

Before the county collector transfers the home to the state by certification, the collector must publish a notice in a newspaper not less than 30 days, but not more than 40 days, before the certification. (Ark. Code § 26-37-102.)

At any time before the certification date, you can pay off the tax debt and stop the process. (Ark. Code § 26-37-101.)

Notice Before the Sale in Arkansas

After getting title to your home, the Commissioner, on behalf of the state, must notify you by certified mail (or by regular mail in some cases) of your right to pay all taxes, penalties, interest, and costs, including the cost of the notice, to redeem the property. (Ark. Code § 26-37-301.)

The notice must also indicate the sale date, which can't be earlier than one year after the property is certified to the Commissioner. (Ark. Code § 26-37-301.)

How a Tax Sale Works in Arkansas

The tax sale consists of a public auction where the home is sold to the highest bidder. (Ark. Code § 26-37-202.) The winning bid must be at least as much as the amount of delinquent taxes, penalties, interest, and the costs of the sale. (Ark. Code § 26-37-202.)

How to Redeem the Property in Arkansas

You can redeem the home (pay off the delinquent amounts to save your home) before 4:00 p.m. central standard time (CST) on the last business day before the date of the sale. "Business day" means a Monday, Tuesday, Wednesday, Thursday, or Friday that's not otherwise observed as an official state holiday. (Ark. Code § 26-37-202.)

How Much It Costs to Redeem the Property in Arkansas

To redeem the property, you must pay

• all delinquent taxes
• 10% simple interest for each year of delinquency
• a 10% penalty for each year of the delinquency, and
• the costs incurred by the county and the Commissioner of State Lands (the official in Arkansas who is responsible for selling homes forfeited to the state for non-payment of real property taxes). The penalties and interest shall accrue beginning on October 16 in the year of delinquency. (Ark. Code § 26-37-302.)

What If I Can't Afford to Redeem the Property?

If you don't have enough money to redeem your home, consider contacting your mortgage servicer to find out if it will pay the delinquent taxes and add the balance to your loan.

In fact, if you have a non-escrowed mortgage on your home, the loan servicer might have already advanced funds to pay delinquent taxes and will then bill you for them. (See "Does a Mortgage Survive a Tax Forfeiture in Arkansas?" below.) If you don't reimburse the servicer, the servicer could foreclose on the property using state procedures.

You could also consider taking out a home equity loan, home equity line of credit (HELOC), or a reverse mortgage (if you qualify) to pay the taxes. Although, these kinds of loans come with risks, especially reverse mortgages. Before pursuing this option, talk to a lawyer or financial advisor about the risks and consequences of getting a reverse mortgage.

Getting the Home Back by Contesting the Conveyance

Also, in some limited circumstances, you might be able to get your home back by challenging the validity of the sale in a lawsuit. In most cases, the suit must be filed within 90 days after the date the home is conveyed to the new owner. (Ark. Code § 26-37-203.)

But in some limited circumstances, like if the person bringing suit is suffering a mental incapacity, is a minor, or is serving in the United States Armed Forces during a time of war during the 90-day period, then the deadline is delayed. In these situations, the deadline is two years after the disability is removed, the minor reaches the age of majority, or the person is released from active duty with the United States Armed Forces during a time of war. (Ark. Code § 26-37-203.)

What Are the Options to Help You Pay Your Taxes in Arkansas?

While Arkansas gives you several opportunities to pay off the tax debt before you permanently lose your home, in most cases, it is better to take action before you fall behind in your taxes. For example, you could:

• try to lower the amount you have to pay by challenging the tax assessor's value of your home (if you believe that your home is valued incorrectly), or
• find out if you qualify for a property tax abatement.

Does a Mortgage Survive a Tax Forfeiture in Arkansas?

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 forfeiture process, the sale wipes out any mortgages. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this from happening. Most mortgages have a clause allowing the lender to then add the amount it paid to your loan balance. You'll then have to make repayment arrangements with the servicer.

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 it paid, you'll be in default. The servicer might then foreclose on the home in the same manner as if you had fallen behind in monthly payments.

Your Servicer Might Set Up an Escrow Account

After demanding repayment of the amount it paid for the taxes, penalties, plus interest (and assuming you repay this tax 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 usual 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.

What Gives the Servicer the Right to Set Up an Escrow Account?

Many mortgages have a clause allowing the lender to establish an escrow account basically at any time it chooses. The servicer sets up and manages the account on behalf of the lender.

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.

Pros and Cons of Having a Mortgage Escrow Account

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 perhaps other bills, are due.

Getting Help

If you're facing a property tax forfeiture in Arkansas and have questions or need help redeeming your property, consider talking to a foreclosure lawyer, tax lawyer, or real estate lawyer.