How Does a Tax Foreclosure Work?

Property Lien

When an individual applies for a mortgage, that mortgage is composed of four elements, which are commonly referred to as PITI. The principal and interest fees associated with the home are paid to the mortgage company. The second "I" stands for homeowner's insurance, which typically must be purchased before the lender will approve the mortgage. The "T" stands for taxes, property taxes, which are paid twice a year. When you fail to pay your property taxes, or income taxes, for that matter, the government will issue you a Notice and Demand for Payment letter that allows you to pay your taxes, plus interest and fees, in full. If this letter is ignored, the government will place a lien against your home.

Beginning Foreclosure

After the letter, which contains the date by which the homeowner must become current on his taxes, is issued, the IRS will send a Notice of Federal Tax Lien. The foreclosure process will now begin. Like a regular foreclosure, the government will publicize the foreclosure and hold a public auction, which will allow the IRS to recoup the former homeowner's back taxes. Unlike a typical foreclosure, however, the IRS advertises the auctioning of the property on the Department of Treasury website. It may also list the foreclosed properties to be sold at auction in applicable county newspapers or outside courthouses.

Auction

Though auction prices can vary widely, there is a minimum opening bid placed on tax foreclosed properties for the government to recoup the former homeowner's delinquent taxes, plus any legal fees, interest, late fees and other expenses involved in the foreclosure process. The winning bidder will be given a tax sale certificate once he has paid the bid in full. However, the original homeowner can still reclaim his home if he can repay his outstanding balance, plus penalties, fees and other costs during the home's redemption period. The length of the redemption period varies based on county and state, but it usually lasts for 4 to 6 months. If the original homeowner does not attempt to reclaim the property during the redemption period, the winning bidder can petition the court to complete the foreclosure process and have the original homeowner's rights relinquished.

Resources

• IRS Tax Foreclosure Database