Unpaid property taxes can result in foreclosure. Under certain circumstances, the property owner may have a right to redeem for a limited period of time. Chapter 13 bankruptcy may allow the owner to catch up on the past due property taxes in some cases.
Tax Foreclosure Sales
At any time after property taxes become delinquent, the taxing unit can sue to foreclose the tax lien. The suit will be brought for the tax, interest, attorney’s fees and costs. Once the foreclosure sale is held, the person may be able to redeem the property within six months after the purchaser’s deed has been filed in the land records.
The owner must pay the tax sale buyer:
- the purchase bid, plus costs,
- any taxes due,
- interest and
- twenty-five percent of the total.
If the property is a homestead or land designated agricultural use when the tax suit was filed, and there is a foreclosure sale, there may be a a two year redemption period in some circumstances. In the first year, the penalty for redeeming is twenty-five percent of all that is owed. In the second year, the penalty is fifty percent of all that is owed.
Chapter 13 bankruptcy may be used to catch up on past due property taxes in some cases. Usually, interest has to be paid at 12% except in certain cases, such as where the homeowner is over 65 or disabled in which case, interest is lower at 8%. Property taxes that come due after the bankruptcy is filed will still have to be paid by the homeowner in addition to the catchup payment made through the Chapter 13 plan. Delaying filing bankruptcy to catch up on property taxes (in the appropriate case), may result in additional penalties, interest and attorney fees.
Non-bankruptcy workout plans with taxing authorities
Taxing authorities will often work with homeowners and permit them to repay taxes under a payment plan. This may be a cheaper, better solution than filing bankruptcy, especially if the homeowner does not have a mortgage because there are no attorney fees or administrative costs. Generally, a repayment period of up to 36 months may be available. If the homeowner is disabled or over 65, quarterly installment payments may be made. Filing a tax deferral affidavit with the tax appraisal district may give the homeowner even more flexibility on a repayment plan without filing bankruptcy. In certain cases, taxes may even be permitted to be deferred. Deferred taxes will eventually have to be paid though by the taxpayers heirs. If the taxpayer has a surviving spouse who qualifies for a deferral, more time may be allowed for repayment. The taxing authorities can be very helpful in advising a homeowner what repayment options are available outside of bankruptcy. Contact the tax collector for more information.
Tax Lien Lenders
There are lenders who will pay the homeowners taxes and then take a lien against the property that has the legal equivalent of a tax lien. These loans can be very high interest and should be approached with caution. If a homeowner makes a tax lien loan, the contract rate of interest (rather than the legal rate of 8 or 12%) has to be paid if a bankruptcy is filed to catch up on the tax lien loan.
When a person falls behind on property taxes, consulting a bankruptcy attorney as soon as possible is extremely important.