People who own real property have to 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 is a claim against your property to ensure you'll pay the debt; it 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. Accordingly, in Indiana, your property can be sold at a tax sale to pay off the delinquent tax bill.
But the winning bidder from the sale normally can't get ownership of your home right away; you'll usually get some time to get caught up on the overdue amounts before that happens. If you don't pay off the debt during what's called a "redemption period" after the sale, though, you'll lose the property permanently.
Indiana property taxes are due twice a year, in May and November. A property is eligible to be sold at a tax sale when the prior year's spring installment of property taxes remains unpaid. (Ind. Code § 6-1.1-24-1).
To sell your home at a tax sale, the county auditor and treasurer must ask a court for a judgment. The court will order a sale, and the treasurer will sell your home at a public auction to the highest bidder, subject to your right of redemption (see below). (Ind. Code § 6-1.1-24-2, § 6-1.1-24-5).
At the tax sale, the winning bid generally must be at least the amount of the:
The high bidder, or the county or town if no one makes a minimum bid, then gets a certificate of sale. (Ind. Code § 6-1.1-24-9). This certificate doesn't convey ownership of the property to the purchaser. Ownership is conveyed through a tax deed after the redemption period expires.
The auditor must mail you a notice by certified mail and regular mail at least 21 days before the earliest date on which the application for judgment and order for sale of real property eligible for sale may be made. The auditor must also post a copy of the notice at the county courthouse, or in another public county building, and publish the notice in a newspaper for three weeks. (Ind. Code § 6-1.1-24-4, § 6-1.1-24-3).
But these requirements don't apply to property that's considered vacant or abandoned real property under Indiana law. (Ind. Code § 6-1.1-24-4, § 6-1.1-24-3).
Many states give delinquent taxpayers the chance to pay off the amounts owed and keep the home. This process is called "redeeming" the property.
In many states, the homeowner can redeem the home after a tax sale by paying the buyer from the tax sale the amount paid (or by paying the taxes owed), plus interest, within a limited amount of time. Exactly how long the redemption period lasts varies from state to state, but usually, the homeowner gets at least a year from the sale to redeem the property.
In other states, though, the redemption period happens before the sale.
Generally, an Indiana homeowner gets one year after the sale to pay the redemption amount and reclaim the home following the sale. (Ind. Code § 6-1.1-25-4). In some cases, though, the redemption period is 120 days. (Ind. Code § 6-1.1-24-9, § 6-1.1-25-4).
But you don't get the right to redeem the property if the home is considered vacant and abandoned under Indiana law and is included on the list of such properties that the county auditor prepares. (Ind. Code § 6-1.1-25-4).
If the real property isn't redeemed during the redemption period, the purchaser can apply to the court to get a tax deed (title) to your home. (Ind. Code § 6-1.1-24-9).
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 you lose your home through a tax sale process, mortgages get wiped out. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this 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 it paid, you'll be in default under the terms of the mortgage, and the servicer can 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 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 downside to having an escrow account is that you'll have to make a bigger payment to the servicer each month. 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.
If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay. If you're already facing a property tax sale in Indiana and have questions or need help redeeming your property, consider talking to a foreclosure lawyer, tax lawyer, or real estate lawyer.