Texas Property Tax Lien Laws
Texas has an unusual system for property tax liens because it is a hybrid, or cross, between a lien and deed system. County tax sales are held monthly in most parts of the state, and the deeds to tax-delinquent properties are sold to the highest bidder. Although a property deed grants full ownership, those sold at Texas tax auctions act like liens for the ensuing six months to two years.
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Tax Liens and Deeds
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A tax lien is in effect a loan a tax auction investor makes to the property owner. By law, liens may be sold by the county government to cover unpaid past due taxes on the property. The investor agrees to pay all back taxes, fines and fees in expectation that the property owner will pay the investor back in full with interest. The only recourse a property owner has to retain ownership is to pay off the tax lien. The tax lien holder has no ownership rights during the redemption period, however if the property owner does not repay the lien then the investor may foreclose on the property and take full ownership. When tax deeds are auctioned or sold, the investor gets full rights to the property immediately and can rent it out, resell it, or otherwise do what he wants.
Hybrid System
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In the hybrid tax sale system in Texas, the property deed is auctioned to the highest bidder, but as with a tax lien system, the property owner has a redemption period in which he can reclaim ownership of the property. To redeem ownership, however, the investor must be repaid in full the entire amount they bid at auction plus any other fees or expenses incurred, and an additional 25 percent penalty on the total. Since the investor receives the property deed immediately, they may do as they like with the property including renting or reselling it. Previous property owners rarely redeem because they are unable to afford the additional 25 percent penalty on top of past due taxes, and the auction price is often above and beyond just the taxes and fees, however prudent investors wait for the full redemption period to pass before they resell Texas properties.
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Two-Year Redemption
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Properties that are listed as homestead or agricultural in Texas have a two-year redemption period from the date of the tax auction. A homestead property is the primary place of living for the owner. The full amount of the auction price plus fees, fines, expenses and the 25 percent penalty must be paid in order for the owner to redeem his property.
Six-Month Redemption
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All non-homestead and non-agricultural properties in Texas that are sold through a tax auction have a six-month redemption period. The owners of these properties can reclaim full ownership only by paying all auction costs, the winning bid amount, and a 25 percent penalty payment.
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References
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