Homes Seized for Not Paying Property Taxes
One way your local government pays for public services is by charging property tax to owners of real estate. Failure to pay property taxes can eventually result in the loss of the property. Some states place a lien against the unpaid taxes, while others states sell the property to recoup unpaid taxes. In both tax lien states and tax deed states, it is possible to lose your home if you fail to pay property tax.
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Tax Lien States
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In lien states, the state sells a lien to your property tax to the lowest bidder. The bidder, or investor, agrees to pay your taxes in exchange for interest. Interest rates vary by state. If the state charges 16 percent interest to the property owner for the "loan" covering the delinquent property taxes, and one bidder offers to accept 14 percent and another 15 percent, the 14 percent bidder typically wins the bid. This means the investor pays off the back taxes, and earns 14 percent interest. When the property owner eventually pays the taxes, he must also pay 16 percent interest. In this scenario, the state earns 2 percent and the investor earns 14 percent. If the property owner fails to repay the loan within a specified timeframe, the investor can take steps to foreclose and seize the property.
Tax Deed States
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In tax deed states, there is no tax lien. Instead, the government entity conducts a forced sale of the property, with proceeds used to repay the back taxes. Investors are involved in the deed sale, as in a lien sale, yet the investor in a deed sale's motivation is to get the property, and not to earn high interest.
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Your State
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Each state handles delinquent property taxes differently. In lien states, the time for selling and collecting on tax liens differs, as does the maximum interest rate charged and the procedures used for foreclosing. A property owner moving from one state to another may be surprised to have their property seized for unpaid taxes if the previous state they owned property in had more lenient property tax procedures. If you are delinquent on your property tax, contact your county tax assessor's office to find out the consequences you face and the amount of time you have to rectify the situation before you can lose your home.
Investors
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Investors take advantage of unpaid property taxes by earning high interest or obtaining real estate at low prices. The primary goal of the investor in a tax lien is to earn high interest, although it is possible to eventually obtain ownership of property for a fraction of its value.
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References
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