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

If you become delinquent in paying your property taxes in some parts of Kentucky, you might lose your home to a tax foreclosure.

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 in Kentucky don't pay their property taxes, the overdue amount becomes a lien on the property. (Ky. Rev. Stat. Ann. § 91.560). 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. Accordingly, if you get behind in paying your real property taxes in Kentucky, you might lose your home to tax foreclosure. In other parts of the state, the tax lien itself is sold, and the purchaser gets a tax lien certificate. After some time passes, the certificate purchaser can foreclose. The home is then sold at a foreclosure sale.

Either way, you'll get some time either before or, in some limited situations, after the foreclosure sale in which you can pay off the debt and thereby keep your home. But if you fail to do so, you'll eventually lose ownership of the property.

How Kentucky Tax Lien Foreclosures Work

In some places in Kentucky, if you don't pay your property taxes, the collector can file a lawsuit to enforce the tax lien. The home is sold, usually at a public auction, as part of the process. (Ky. Rev. Stat. Ann. § 91.487). When the court confirms the sale after the redemption period (see below), the purchaser from the sale gets a deed (title) to the property and becomes the new owner. (Ky. Rev. Stat. Ann. § 91.514).

Notice of a Tax Lien Foreclosure

The collector must mail you a notice within 30 days after filing the suit. (Ky. Rev. Stat. Ann. § 91.4884). The collector will also publish a notice about the action in a newspaper. (Ky. Rev. Stat. Ann. § 91.4883).

Redemption Period Before the Foreclosure Sale

Under Kentucky law, you get the right to pay off the debt (redeem) the property at any time before the foreclosure sale takes place. (Ky. Rev. Stat. Ann. §§ 91.4884, 91.511).

When You Can Redeem After the Sale

You'll also get the right to redeem within 60 days after the sale if the purchase price is less than the home's assessed value. (Ky. Rev. Stat. Ann. §§ 91.4884, 91.511).

How Kentucky Tax Lien Certificate Sales Work

If you don't pay your property taxes in other parts of Kentucky, the county clerk may sell the tax lien that's on the home. (Ky. Rev. Stat. Ann. § 134.128). The purchaser buys a tax lien certificate (a "certificate of delinquency") at the sale and can eventually foreclose on the home to collect the amounts due. At the end of the foreclosure process, the property is sold at a foreclosure sale. (Ky. Rev. Stat. Ann. § 134.546).

Notice of a Tax Lien Certificate Sale

Two notices of the delinquency are mailed before the certificate sale. (Ky. Rev. Stat. Ann. § 134.504). Notice about the certificate sale is also published in a newspaper. (Ky. Rev. Stat. Ann. § 134.128).

After the certificate sale, the purchaser who bought the certificate must mail you a notice within 50 days after the clerk delivers the certificate of delinquency to that third-party purchaser and annually thereafter until the notice described below is sent. (Ky. Rev. Stat. Ann. § 134.490).

Notice of Foreclosure in Kentucky

If the third party, state, county, or taxing district gets the certificate and later decides to foreclose, notice must be mailed to you within 45 days before starting a foreclosure. (Ky. Rev. Stat. Ann. § 134.490).

Redemption Period Before the Foreclosure

The purchaser can't start a lawsuit to foreclose until one year after the date the taxes became delinquent. (Ky. Rev. Stat. Ann. § 134.546). You can redeem the home during this one-year period.

When You Can Redeem After the Sale

You also get an additional redemption period if the property is sold for less than the assessed value. If the property sold for less than two-thirds of its appraised value at the sale, the additional redemption period is six months. (Ky. Rev. Stat. Ann. §§ 134.546, 426.530). If the state, county, or taxing district forecloses the lien, the property may be redeemed at any time before the master commissioner gives a deed to the purchaser. (Ky. Rev. Stat. Ann. § 134.549).

Does a Mortgage Survive a Tax Foreclosure in Kentucky?

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 foreclosure, the sale wipes out any mortgages. 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.

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.

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.

Getting Help

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 tax foreclosure in Kentucky and have questions or need help redeeming your property, consider talking to a foreclosure lawyer, tax lawyer, or real estate lawyer.

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