Tax Lien Foreclosure

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 What Is a Foreclosure?

A foreclosure can be devastating for an individual or a family. It means that they lost their home and may not be in a healthy financial situation.

A foreclosure occurs when a homeowner cannot make their monthly mortgage payments and is evicted by their lender. Lenders have the authority to engage in foreclosures based on the contracts that the home purchaser signs and the lender or seller.

The home is collateral, typically stipulated in the home purchase contract. Some lenders allow a grace period where the homeowner can make a payment before a foreclosure occurs.

This period, however, often only lasts a couple of months before a property is foreclosed. In general, if a borrower is behind on their payments, it is more difficult for them to catch up because, in many cases, there are late fees applied.

What Is a Tax Lien Foreclosure?

A foreclosure on a home may occur for many different reasons. A tax lien foreclosure, also called a lien sale, is a specific type of foreclosure action the government brings against a property owner for failing to pay any necessary taxes.

Depending on the type of property involved and the facts of the case, this type of foreclosure may involve the failure to pay property taxes and state and federal income taxes. When a tax lien foreclosure occurs, the tax lien may be sold by the state to recover any outstanding taxes the property owners owe on a particular piece of real estate.

During a tax lien foreclosure, the lien on the property can also be offered to potential investors in a public auction. This differs from other types of foreclosure actions, for example, a foreclosure by power of sale, where a home is sold privately by a mortgage lender.

In addition, a tax lien foreclosure often allows a bidder from outside of the region to place a bid via an online auction. Tax lien foreclosures are only one of the two primary methods government agencies use to address delinquent taxes on pieces of real estate.

The other type of foreclosure is a tax deed sale. It is important to note that a tax lien will appear on an individual’s credit report, which may have a negative effect on their credit score.

If there is a lien on a property, it prevents the owner of the property from selling or refinancing it. The lien will remain attached to the property until the debts or outstanding taxes are paid off.

What Is the Redemption Period in a Tax Lien Proceeding?

In some tax lien foreclosure actions, the property owner may be granted a redemption period. This is a specific amount of time given to the property owner as an extension to repay the lien in addition to any other fees that may be owed, such as penalties or accrued interest.

Typically, this ranges anywhere from three months to three years. During the grace period, the lien holder is not permitted to contact the property owner, demand payment from them, or threaten any further legal action against them.

In addition, the lien holder is not permitted to contact other interested parties, for example, a mortgage lender. It is important to note that this may vary according to the laws of each state.

Depending on the laws of a jurisdiction, a lien holder may also be required to perform specific duties during the redemption period. For example, they may be required to pay remaining unpaid property taxes while the property owner is shielded by the requirements of the redemption period.

If the lien holder does not pay the taxes during the redemption period, they may lose their lien certificate, meaning another individual can buy out their interest.

What Happens After the Redemption Period Ends?

The lien holder can initiate the foreclosure proceedings when the redemption period expires. However, they will typically be required to pay any court costs related to the legal action.

Generally, a tax lien foreclosure action usually results in favor of the interested investor, meaning they will acquire the property. In the alternative, a tax deed sale is another possible consequence that may result from the action and will grant the lien holder the right to make the first bid.

In certain cases, the outcome of a foreclosure proceeding may be contested or appealed by the property owner. This applies in cases where some type of error or violation, such as fraud, arose during the hearing.

For example, if the state accidentally issued a lien on the property in error under state law, they will typically reimburse the property owner, but often at a lower interest rate.

What Are the Consequences of a Foreclosure?

A foreclosure may be overwhelming and complex. Individuals must be aware of their rights regarding what a bank can do.

Every state has its own regulations governing the foreclosure process. There are several things to consider regarding what a bank cannot do before foreclosing on a home, including:

  • Some states require banks to determine if the homeowner qualifies for either a loan modification or some other form of help before foreclosing on the home;
    • If a bank decides to do both at the same time, it is an illegal process known as dual tracking;
  • If the homeowner applies for help or a loan modification, the bank cannot start the foreclosure process;
  • The bank must obtain a court order and file for eviction before foreclosing the home;
  • The bank cannot padlock a home if the owner is still living in it; and
  • If an individual reinstates their mortgage before the sheriff’s sale, the bank cannot continue foreclosure.

There are, however, certain things that the bank is allowed to do during the foreclosure process, including:

  • A bank may padlock a home if it is empty;
  • The bank can seek alternative judgments if they are unable to sell the home at auction for what they are owed on the mortgage; and
  • The bank can either request a non-judicial foreclosure or judicial foreclosure.

Do I Need a Lawyer for Help with a Tax Lien Foreclosure?

Tax foreclosures are very specific types of foreclosure proceedings. Because of the involvement of the state or federal government, a tax lien foreclosure may become quite complex.

In addition, these types of foreclosures are typically difficult to challenge. If you have any issue, questions, or concerns related to a tax lien foreclosure, you should consult with a foreclosure lawyer as soon as you can.

Your lawyer can help you throughout the process, provide further legal advice regarding your issue, and represent you in court. If you are facing a potential foreclosure that has not begun yet, your attorney can review your property documents to determine whether or not your property can legally be foreclosed upon.

In addition, your lawyer can determine if there is a way the foreclosure can be avoided and explain any foreclosure alternatives to you.

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