Buying a house involves more costs than just the mortgage payment, including property taxes. These taxes generate revenue for the county to fund things like police departments and schools. The cost of property taxes depends on where you live and the value of your home. Failure to pay property taxes on time likely will result in a fee. However, if you owe back taxes, the tax collector may attempt to sell your home through a tax deed sale or issue a lien against your property.
Individual tax jurisdictions determine how much your property taxes will be each year. Although the methods of calculations vary by location, most calculate the bill by multiplying the tax rate by your property's assessed value. The assessed value may or may not be similar to the fair market value, also depending on where you live. Most tax assessors preform property value reassessments at regular intervals. The method for dealing with past due property taxes also is decided by the tax authority.
Tax Deed Sales
One way to deal with delinquent property taxes is to hold tax deed sales. This method is similar to a foreclosure. The tax collector holds an auction where participants can bid on available properties. Typically, the starting bid is the amount of unpaid property taxes plus any interest or fees imposed by the county. The highest bidder wins and typically must pay in full the day of the sale. Upon full payment, the winning bidder is given the deed to the property and becomes the legal owner. Usually, properties up for tax deed sale are sold as-is or even sight-unseen.
Tax Lien Sales
Some locations hold tax lien sales to deal with delinquent property taxes. The lien sales are conducted in an auction format, but rather than bidding on the amount of the past due taxes the bid is made on the amount of interest charged on the delinquent amount. The winning bidder pays the past due amount and is issued a tax lien certificate. The tax collector then begins charging interest on the account for a specified amount of time. If the property owner wants to repay, he will owe the past due amount plus interest. In this scenario, the lien holder makes back his original investment, plus interest. If the property owner doesn't repay by the end of the interest period, the lien holder can attempt to foreclose on the property through the judicial system.
Some counties may allow you to make installment payments against delinquent property taxes to help you avoid tax foreclosure. For example, counties in California allow you to begin a payment plan up to five years after the bill became delinquent. If you believe your reassessment value is too high, you can try to file an appeal. You'll need to contact your county for more information on the appeal process.
- Tax Policy Center: State and Local Tax Policy -- How Do Property Taxes Work?
- Realtor: Buy Distressed Properties -- Tax Lien vs. Tax Deed Sales
- Santa Cruz County Treasurer: Delinquent Taxes ... A Cause for Redemption
- Kiplinger: How to Appeal Your Property --Tax Bill
- Montgomrey County Maryland: Tax Sale Information and Procedures