Property taxes are a necessary part of home ownership. They provide the needed funds for schools, libraries, roads, and local services like the fire department and police department. Every piece of property provides a small amount to the high cost those services require. Most people don’t realize how much they pay for those services. Even fewer know that they have back property taxes owed until they receive the notice in the mail saying they are going to auction, or even worse, that the lien holder is foreclosing on their house.
Having said that, this is for informational purposes. We are not CPAs or attorneys and advise you to seek expert guidance on what to do if you receive any kind of lien on your property, including property taxes.
There are two different ways property taxes are paid. They are either paid in advance or in arrears. Paid in advance means that they are paid in advance of the time you actually live in the property. Paid in arrears means it is paid after you have lived in the property. Most homeowners don’t know if their taxes are paid in arrears or advance because the mortgage holder generally escrows them and pays them to the property owner. Back taxes on a house are always given the greatest priority lien. Lenders don’t want to lose a property they are lending on to back taxes. So they ensure payment by using an escrow account to pay them. If there is a missed payment, it may be a very small amount.
If the amount is larger, you are probably responsible for your taxes. If you have no loan and haven’t paid your taxes, you should probably contact your county records to check. If you’ve received a notice already, read on to find out more about tax liens and what to do about them when you have one on your property.
What Are Tax Liens?
A tax lien is the same as any other lien you’ve heard of. Essentially, when you owe someone a debt, including the government, they have the right to file a claim on your assets to ensure payment of that debt. This is typically on your property because it’s generally your largest asset. This means that if you sell your home, any debt holders will be paid ahead of any profit you’d receive from its sale. They can even seize assets or property to pay the debt.
There are a few different types of tax liens. For the purpose of this article, we’ll focus solely on property tax liens. However, you can read about federal tax liens here and state tax liens here.
Back Property Taxes Owed?
Your village, county, or state will make numerous attempts to collect your property taxes. If all of these attempts are rebuffed, they continue to sell the debt at delinquent property tax auctions. These are different from the typical auctions you think of. They auction off a tax lien certificate to get paid immediately, allowing your local government to pay their debts immediately. This is the one way investors end up investing in tax liens hoping to receive interest or any fees incurred from the unpaid property taxes owed.
Auctions can happen in person but do also occur online. There are two different tax auctions. You will only lose your house in one type of auction, but let’s cover both of them.
Tax lien sale: In this form of auction, the winning bidder is only allowed to collect the back taxes and any interest, fees, or penalties accrued. You do not lose your home with this form of auction.
Tax deed sale: In this type of auction, the winning bidder may collect the delinquent taxes but additionally will collect the interest, fees, and penalties due. They also have an interest in the property, should all delinquent taxes and additional costs not be paid.
This may be confusing, but there are two ways the winning bidder wins the tax certificate. The first is just like you’d think, and it’s by paying the most money for the tax certificate. The second method is known as “bidding down the interest rate” and is rewarded to the person bidding the lowest amount of interest charged for the lien.
Contact a local real estate attorney to find out exactly what to expect with a tax lien sale in your state. They will also help guide you on what steps to expect as they come up.
After The Delinquent Property Tax Auctions
After the auction, the winning bidder pays the full amount of the lien, including taxes, fees, and any other penalties. The winning bidder should be aware of their local requirements and laws. They’ll be required to follow the rules set in place by their local government entity.
There is generally a redemption period for the property holder to pay back the full debt plus any new interest. Most winners are required at some point to notify you that they won the auction and that you’ll have to pay them all monies due to keep your property. If the full debt is not paid, the new lien holder can start foreclosure proceedings and may eventually own the property. If you have received the foreclosure notice, you have little time to figure out what to do. Your options are also very limited. We have helped those who have been in this process before by buying their house for cash and paying all liens owed while closing. Fill out this short form if you want to start this process immediately.
Sell My Chicago House Fast
Options With Back Property Taxes Owed
Even if your property has a tax lien, you still have a few options. We’ll look at how to keep your home and how to sell it so that you can deal with any tax lien you have. The most important thing to do is to get your process started as soon as you know there are passed-due property taxes.
Catch up your delinquent taxes.
You can do this in many ways, but the basic idea is raising funds to pay delinquent taxes. If you have enough equity, you could even refinance your mortgage to raise the funds to pay it. Other ways you can raise the funds are to take out a personal loan or ask a family member to help.
Contact your taxing authority about initiating a payment plan.
If you can afford to make payments on your past due property taxes, contact your county about setting up a payment plan. Sometimes your taxing authority would rather save expenses and time by agreeing to receive payments. Making payments on your delinquent taxes over time may be the easiest way to catch up on your property taxes.
File for bankruptcy when you have back taxes on a house.
This will probably not stop you from losing your house, nor will it catch the taxes up. It will stop foreclosure and potentially give you more time to sell your house. This may significantly lower your credit, though. Weigh the costs and benefits for a move like this, as this may leave you with few options.
Sell your house fast with unpaid property taxes.
Selling your greatest asset may be your best option, and that would be your property. You may consider listing your property with an agent to sell. Make sure they emphasize a fast sale. This may come with a cash offer from an investor, or contact a reputable cash buyer investor, like SILT Real Estate and Investments, LLC. The most important thing is making sure you have enough time to close and have enough equity in your tax delinquent property to cover the lien. Some cash buyer investors can also close in as little as seven days.
As you can see, there are still options if you are delinquent on property taxes. Addressing it as soon as you find out about it is important. Contact professionals to help guide you. A financial consultant or tax advisor may be able to give you the most information to help you determine the best course of action for you and your situation. If you are prepared to sell, fill out the short form below. If you have any questions about your past due property taxes, you can contact us here or call (708) 415-3801.
