When property taxes become too far past due in payment, some states will sell the property deed as a way to recuperate the taxes they're owed. Not all states sell property when taxes are delinquent; however, some sell a lien certificate on the property instead. A property owner can retain ownership of his real estate by paying off the lien with interest and penalties, as long as the payoff happens within a specific period of time set by law.
State Specific Laws
Each state has its own set of laws, rules, regulations and procedures for dealing with tax delinquent property. Most states auction off a tax lien certificate instead of selling the property, but some will auction the tax deed instead. Other states do not sell the lien or the deed. The amount of time that can pass before the state or local government takes action on past due taxes depends entirely upon the state the property is in, and sometimes each county within the state has variances in policies as well.
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Property Tax Liens
In all cases, when property taxes go unpaid, the property owner receives notices in the mail. When enough time has passed, the property owner may receive a certified letter telling her that the property will be auctioned. In states that sell property tax liens, investors bid to be the holder of the lien so that they can earn the interest payments on it. Interest rates vary by state and in some cases the investors bid down the rate to win the lien. Some states award interest rates of 16 percent or higher, and the property owner must repay that interest on top of the original lien amount in order to retain ownership of his property.
Tax Deed Sales
States that do not sell tax liens may sell tax deeds instead. Like tax lien states, the original property owner receives ample notice of past due taxes and the intent to auction if the situation comes to that. In a tax deed sale, investors bid to purchase the property for the total cost of outstanding taxes and penalties due. Winning bidders receive a deed or title to the property so they become the new legal owner once the auction is completed.
Type of Property
In a few states there is a combination of lien and deed sale for tax delinquent properties, or there are exceptions in the laws. In Texas for example, investors tax deeds at auction. The original owner of the property can repay the investor for the total amount of money spent at the auction plus 25 percent in penalties, and re-acquire legal ownership. If the auctioned property is a homestead--meaning it was the primary place of residence for the owner--the owner can buy back his tax deed within two years from the date of the auction. If the property is not a homestead property however, the original owner must buy back the deed and pay full penalties within six months. In other states a property deed or lien cannot be auctioned if it is owned by an elderly or disabled person.
In states that sell tax liens, there is a specified period of time stated by law in which the original property owner can pay off the lien and prevent full foreclosure. This period of time is known as the redemption period. In the redemption period, the lien holder has no legal rights of access or ownership to the property in question. If the property owner does not repay the lien with interest before the redemption period expires, the lien holder can legally file foreclosure proceedings through a local court. Redemption periods range from six month to three years.