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4 Facts to Know About Tax Lien Foreclosure

When we think about foreclosure, we tend to think about families falling behind on their mortgage payments. But falling behind on property taxes can also lead to lost homes. We’ve got the top 4 facts you should know about what’s called “tax lien foreclosure.”

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1. It can happen over small amounts of unpaid taxes.

Tax lien foreclosure can happen to people who don’t owe much in property taxes. As in, $44. It’s a reminder to stay on top of property taxes and to make sure any older loved ones in your care are doing the same. Some states are quick to send private companies after people who don’t keep up on their property taxes, leaving the homeowner liable for the original taxes, plus legal fees and interest on the debt.

2. It’s an investment vehicle.

4 Facts to Know About Tax Lien Foreclosure

Private and corporate investors have turned to tax liens as a way to earn easy money in interest. When an investor buys the lien on a property in property tax delinquency, he or she can charge interest. If a homeowner gets the money together to pay back taxes, the homeowner will also owe interest to the holder of the lien. In some cases, the interest rate on these transactions can go as high as 50%, though 7-10% is more common.

How to Avoid Foreclosure in 3 Easy Steps

3. It’s under scrutiny.

The current tax lien foreclosure system isn’t without critics. In part, that’s because folks don’t always get adequate notice that their property taxes are due and they don’t always understand the potential consequences. Sometimes, the warning notices are sent to the wrong address, so the homeowner only finds out about the overdue bill when it’s foreclosure time. In other instances, those whose properties fall into tax lien foreclosure are older folks who needed more support keeping up with their tax bills.

4. Redemption is possible.

4 Facts to Know About Tax Lien Foreclosure

No, we’re not talking spiritual redemption; we mean redemption of a property that’s gone up for auction after property tax delinquency. If a homeowner can pay the full sales price, plus interest and fees, he or she can take steps to redeem the property. State rules vary as to the specifics of the redemption process. In some, you can turn up at the auction and bid on your own home. In others, you have the right to buy it back from the seller within a certain time span after the auction.

The Takeaway

The obvious takeaway here is: pay your property taxes, and make sure your loved ones do the same. In some cases, it’s possible to negotiate a property tax repayment plan, or to arrange for a tax reassessment to lessen the amount due in back taxes. Far better, though, to avoid this scenario altogether.

Check out our page on What happens my taxes after buying? for more on how home values and property taxes go together.

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Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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