All local governments impose property taxes on homeowners to finance county and municipal services. Property taxes help pay for police and fire services, public schools, utility services, and the like. So, your municipal or county government has a significant stake in collecting property taxes to meet its budget.
Local governments don't look kindly on homeowners who fail to pay their property taxes. And they have some powerful collection tools that ensure that property taxes will be paid sooner or later—including selling your home.
Interest and Penalties Will Accrue
Your local taxing authority will start charging interest on your tax account if you don't pay your property taxes when they're due. This interest typically accrues monthly. You might also incur monetary penalties.
So, the total balance you'll owe to your local government will increase steadily. At some point, your local government might even publish notice of your delinquent taxes in your local newspaper.
A Tax Lien Will Attach to Your Home
The next thing that will happen is that a property tax lien will attach to your home. A property tax lien usually has priority over all other liens. The effect of this lien is that you can't sell your home until the property tax bill is paid. The lien is a cloud on your title, and a buyer can’t get clear title to your home until the taxes are paid and the lien lifted. So, you can forget about selling your home and walking away from your unpaid property taxes.
You Could Lose Your Property in a Tax Sale
If you continue to be delinquent in your property tax payments, your taxing authority will likely schedule your home for a tax sale, which is often like a foreclosure. But a tax sale can play out in different ways, depending on the laws where you live.
- The taxing authority might be allowed to sell your home at a tax sale and give the deed to the highest bidder at the sale.
- The taxing authority might sell the tax lien instead of selling your home. The purchaser of the lien pays all the tax due. You then owe the purchaser, not the taxing authority. If you still don't pay, the purchaser can typically file a petition with the court to foreclose on your property and take ownership of it (or follow some other procedural steps to get title to your home). Most people get a period of years before this last step occurs, but during this time, more property taxes continue to accrue.
- Some jurisdictions don't hold a sale. The taxing authority simply executes its lien by taking title to the home.
- In other places, the taxing authority forecloses the property, typically by filing a lawsuit in court, before holding a tax sale.
Your Mortgage Lender Might Pay the Delinquent Taxes
Often, a mortgage lender will pay off a delinquent tax debt rather than allow the property to go to a tax sale. The lender will pay this expense because the mortgage will be wiped out if your home is sold at a tax sale.
But you won't be off the hook for paying the taxes. Your lender will add the taxes to your mortgage balance. If you can't reimburse the lender, it might foreclose on your property.
Redeeming the Property
Generally, homeowners who lose their property in a tax sale may “redeem” (reclaim) the home by:
- paying the buyer the amount paid at the sale, plus allowable costs and interest, or
- paying the delinquent taxes, plus interest.
The length of the redemption period after a sale varies from state to state but is usually at least a year.
In some states, however, the homeowner’s right to redeem happens before the sale.
Options to Catch Up on Delinquent Taxes
Depending on where you live, you might have a several options for catching up on delinquent amounts or making your taxes more affordable.
Request a Tax Abatement
You might be able to request an abatement of your taxes due to economic hardship. An "abatement" means all or part of your property taxes are forgiven. Every state offers property tax abatement or exemption programs that permit certain homeowners to lower their property taxes because of their age, disability, income, or personal status. Older homeowners and veterans typically can get a reduction in their property taxes. Usually, you'll have to apply for the abatement and prove you're eligible.
You can't get an abatement in some places if you're already delinquent in your tax payments. But you might qualify for a deferral (where you're allowed to postpone paying the taxes if you meet eligibility requirements) or a repayment plan (see below). Or the taxing authority might be willing to negotiate with you on the amount of taxes that are due or waive penalties and interest.
Enter Into a Payment Plan
You might also be able to apply to your taxing authority to enter into a payment plan, allowing you to pay what you owe in installments over time. Again, you might have to prove financial hardship.
Other Programs
Some states and local governments have special programs to help financially struggling or senior homeowners who can’t pay their property taxes. The programs might provide low-interest loans or grants.
And, again, some states also have property tax deferral programs that require you to pay only a specified percentage of your annual household income for property taxes. You might be able to postpone paying the taxes until you sell the property or your estate is settled after your death.
You can also apply for a loan to pay your property taxes. Banks and property tax lenders make these loans. Property tax lenders specialize in lending money to pay back taxes. But many such lenders charge very high interest rates, so you should explore this option only as a last resort.
A Tax Lawyer Can Help
If you fall so far behind on your property taxes that you get notice of a tax lien or sale, consider talking to an attorney as soon as possible to learn what alternatives are available.