What Happens If You Don't Pay Property Taxes on Your Home?

If you fail to pay your property taxes, you could lose your home to a tax sale or foreclosure.

By , Attorney

Owners of real property have to pay property taxes. These taxes fund various services that the government provides, like schools, libraries, roads, parks, and the like. The amount of tax due is usually based on a home's assessed value. In many cases, a loan servicer (on behalf of the lender) will collect property taxes as part of the monthly mortgage payment and pay the taxes on the homeowner's behalf through an escrow account. But if the taxes aren't collected and paid through escrow, the homeowner must pay them. When a homeowner doesn't pay the property taxes, the delinquent amount becomes a lien on the home.

If you fall behind in making the property tax payments for your real estate, you might end up losing your home. The taxing authority could sell your home, perhaps through a foreclosure process, to satisfy the debt. Or the taxing authority might sell the tax lien that it holds, and the purchaser might be able to foreclose.

    The Taxing Authority Might Hold a Tax Sale

    Once a property tax lien is on the home, the taxing authority might eventually hold a tax sale, which is similar to a foreclosure sale. Generally, the two basic types of tax sales are "tax deed sales" and "tax lien certificate sales."

    What Is a Tax Deed Sale?

    In a tax deed sale, the taxing authority sells the home outright, and the purchaser gets a deed to the property.

    What Is a Tax Lien Certificate Sale?

    In a tax lien certificate sale, the taxing authority sells the tax lien, and the purchaser gets the right to collect the debt along with penalties and interest. If the delinquent amounts aren't paid, the purchaser can typically foreclose or follow other procedures to convert the certificate to a deed (meaning, the person or entity that bought the tax lien can get ownership of the property).

    In some jurisdictions, though, a sale isn't held. Instead, the taxing authority simply executes its lien by taking title to the home. State law then generally provides a procedure for the taxing authority to dispose of the property, usually by selling it. In other jurisdictions, the taxing authority uses a foreclosure process before holding a sale.

    Your Right to Redeem the Home Before or After a Tax Sale

    In many states, the homeowner can "redeem" the home after a tax sale by paying the buyer 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.

    When Your Loan Servicer Might Foreclose

    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, the sale wipes out any mortgages. So, the servicer will usually advance money to pay delinquent property taxes to prevent a tax sale. The servicer will then demand reimbursement from you (the borrower).

    The terms of the loan contract usually require the borrower to stay current on the property taxes. If you don't pay up, 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, your servicer will probably set up an escrow account for the loan (assuming you reimburse the servicer for the taxes it paid).

    How Much You'll Have to Pay for Escrow Items

    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.

    Upside and Downside of Having an Escrow Account

    One negative aspect of 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 the tax 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. To find out if you get the right to redeem your home after a tax sale in your state and find out the procedures for doing so, talk to a local real estate attorney or tax attorney. If you're facing a foreclosure and want to learn about options for your particular circumstances, consider talking to a foreclosure attorney.

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