A tax lien foreclosure is the forced sale of a property due to the owner’s inability to pay their property taxes. It is a severe consequence of unpaid taxes that doesn’t happen quickly. You’re likely to deal with foreclosure after months or years after the first missed payment, depending on your state.
That said, tax lien foreclosure is a real and scary risk that you face. If you’re dealing with unpaid taxes or you’re facing foreclosure, there are important things you can do to prevent it from happening.
Read the rest of this article to better understand tax liens, how they occur and their consequences, what your rights are in this situation, and how you can potentially stop the foreclosure process.
Do Unpaid Taxes Cause a Tax Lien on Your Property?
When you have a property tax lien, it means that you haven’t paid your taxes and the government has placed a claim on the property. You’ll have to pay off your debts to remove it.
Tax liens have various consequences:
- Cloud on title. You will have to pay off the debt before you’re allowed to sell your property.
- Loan challenges. If you want a home equity loan, a tax lien can make this impossible.
- Tax certificate sales (in some U.S. states). This is a certificate that’s sold by the tax authority to investors, so that you’ll have to pay them the outstanding debt. If you don’t settle the amount, it can lead to foreclosures.
- Credit score harm. A tax lien and foreclosure will come up in your credit report, affecting your score.
How Does a Tax Lien Lead to Foreclosure?
A tax lien can progress to the point of you having your house taken away. How it happens varies in different states, but here is a general guideline of what to expect.
- The lien is placed on your home because of failed payments and a lack of a repayment plan to settle the debt.
- A formal notice will be sent to you by mail. It will mention the risk of foreclosure, as well as a deadline by which you can pay off the debt and any additional fees or penalties.
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If you don’t pay the debt, your property can enter a tax sale, or auction. There are two types to know about:
- A tax lien certificate sale where the tax lien is sold to an investor who can enter foreclosure if your debt to them is outstanding.
- A tax deed sale. A bidder interested in the house pays the debt for you and receives a tax deed to transfer property ownership onto their name.
- Depending on the state where you live, there might be a redemption period after a tax sale in which to regain your home. However, you’ll have to pay the new owner whatever amount is outstanding, including fees and penalties.
- Forfeiture. If you don’t manage to pay off the taxes in the above scenarios, you’ll lose your home.
How Can You Prevent Tax Lien Foreclosure?
You can prevent losing your home by staying on top of your property taxes and seeking assistance if you’re struggling to pay them. Here are some ways to avoid foreclosure.
Set Payment Reminders
Your property taxes might need to be paid every year or at specific times throughout the year. Make a note of these deadlines, such as on your fridge calendar or a reminder app on your phone, so that you don’t forget them.
Check Your Tax Bill
Ensure you understand everything included in your bill and check that there are no errors, such as an incorrect property value assessment.
Be Aware of Notices
Your tax collector will send you important information such as bills and notices regarding unpaid taxes.
Consider Payment Plans
If you’re struggling to make payments, you should research what payment plans are offered in your jurisdiction. Speak to your local tax collector for information.
Explore Exemptions
In some cases, you might be able to make use of an exemption, such as if you’re a senior citizen or veteran. It’s worth doing some research to see if any of these exemptions would apply to you.
How Can You Stop or Resolve a Tax Lien Foreclosure?
If you’re faced with a tax lien foreclosure, you might feel like you’re at a dead-end. However, there are things you can do to rectify the situation and possibly save your home.
File for Bankruptcy
If you file for bankruptcy, you can usually stop a foreclosure. There is a Chapter 7 and Chapter 13 bankruptcy option.
- Chapter 7 removes unsecured debts and frees up resources for taxes.
- Chapter 13 enables a repayment plan that will address all overdue taxes, but over time instead of at once.
Dispute the Tax Assessment
For home valuations that are excessive, you can argue against them. You’ll have to review your property valuation and collect evidence to prove the home value, such as by searching for comparable property values in your location. You’ll file an appeal and if it’s successful, you’ll reduce your tax bill.
Sell Your Home
Selling your home can help you to deal with and avoid foreclosure. Although you’ll be losing your home, you’re in control of the process and avoid other negative consequences of going into foreclosure, such as forced eviction, credit score issues, or legal fees and penalties.
What are Your Rights During Tax Lien Foreclosures?
Although your rights and actions you can take during a tax lien foreclosure vary from one state to the next, there are some general rights that you should bear in mind.
- You have a right to receive notices. Your property can’t be taken from you unless you’ve received notices about the missed payments and haven’t taken action on the unpaid taxes. These notices should be in writing.
- You can redeem your property. There are ways to prevent property foreclosure, such as by paying back taxes and taking advantage of redemption periods.
- You can legally challenge the foreclosure. For example, if there are errors due to incorrect debt or notices that didn't reach you.
Do You Need a Lawyer for a Tax Lien Foreclosure?
A lawyer can help you navigate the process of a tax lien foreclosure, and finding one doesn’t have to be stressful or time-consuming. Hire an experienced lawyer on ContractsCounsel, an online legal platform connecting clients with vetted lawyers. They’ll use their tax and legal knowledge and expertise to help you deal with a foreclosure and prevent it by exploring the best options for your specific case.
