A tax sale occurs when a piece of property is sold to collect on unpaid property taxes. In many cases, real property is being sold, which may include a home or a business building.
A tax sale is a specific type of foreclosure process which is initiated by a governmental agency rather than by a loan company or a bank. There are two main types of tax sales, including a tax deed sale and a tax lien sale.
In a tax deed sale, the property is sold to the highest bidder at an auction in order to collect on the tax payments. In a tax lien sale, the governmental agency sells a tax lien interest in the property, usually in the amount which is owed in taxes. In some cases, the lien can be sold online in a manner similar to other security interests.
There are numerous steps which must be followed in each of these types of tax sales. If any of those procedures are not followed, it can lead to further complications in the legal process.
What is a Tax Deed Sale?
A tax deed sale refers to a concept in real property law where the deed to a specific property is sold at public auction to the highest bidder. The tax deed itself is a legal document which transfers ownership of the property to a new buyer.
The purpose of a tax deed sale is for the county to recoup the amount which the homeowner failed to pay on their property taxes. Therefore, the state of local government typically sets the minimum price for the sale of the property.
It is important to note that not all states recognize tax deed sales. Some states only permit tax lien arrangements with other states may only permit tax deed sales. There are, however, some counties that recognize both types.
What are Tax Lien Sales?
A property tax lien is a legal claim placed on real property by a local or county government when the property owner fails to pay their property taxes. When property taxes go unpaid, the taxing authority places a lien on the property to secure the amount owed. The lien attaches to the real property on which the taxes are delinquent and is usually in the amount of the delinquent taxes owed plus accrued interest and fees.
If the property owner does not pay the delinquent taxes within the time allowed by law, the lien may be sold to a third-party purchaser at a public auction. A property tax lien sale occurs when the local taxing authority sells these liens to the public so that the government can collect the money owed. The money earned is intended to make up for the unpaid property taxes.
Note: A property tax lien sale is distinct from a federal tax lien imposed by the Internal Revenue Service (IRS) for unpaid federal income taxes. Federal tax liens may attach to all of a taxpayer’s property, including homes, vehicles, bank accounts, and wages. Property tax lien sales, by contrast, involve liens placed on specific real property by local governments for unpaid property taxes.
The money earned is intended to make up for the unpaid property taxes. A tax lien sale is a type of property tax sale, which is different from the tax deed sale, where the actual property is sold. The title is passed to the highest bidder and is reverted back to the state if there is no buyer.
It is important to note that if a tax lien is imposed on property it does not automatically mean that the property will be seized and sold. The purpose of these types of sales and auctions is to ensure that the tax authority receives the first claim to the property before any other creditors, such as credit card companies, that may also be trying to obtain the property.
In previous times, a tax lien sale was conducted in person, such as in an auction setting. Interested parties were able to attend the tax lien sale and purchase the liens, with the highest bidder usually winning.
Many jurisdictions now hold tax lien sales online, which opens participation to a larger pool of bidders, including individuals who are not local to the area of the property. Counties across the country use established online auction platforms to conduct these sales, and online bidding has become standard practice in a growing number of states. In addition, it allows individuals who are not local to the area of the property to obtain an ownership in the property.
In the majority of jurisdictions, a title that is obtained through a tax deed sale is recorded through a tax deed which provides written proof of the change of ownership. The deed is a specific type of quitclaim deed, which is also referred to as a sheriff’s deed.
If a sale is not made at the auction, the title may revert back to the county government. The tax deed is recorded and maintained at the registrar’s office to be used in future title searches.
It is important to note that it is the buyer’s responsibility to check the status of the title and to ensure that the title has no encumbrances, including:
- Other liens;
- Clouds of title;
- Title defects; or
- Anything else which may result in litigation.
These types of conditions render a title unmarketable.
What are Some Legal Issues Involved in a Tax Sale?
A tax sale can be a complicated process because it involves a combination of state and local real estate laws as well as state and local tax laws. Legal issues which commonly arise in a tax sale may include:
A property title must be fully marketable in order for property to be transferred. This means that issues including a lien or a title defect must be cleared up before a property can be legally transferred.
A landowner who owes property taxes must be informed by the government agency before proceedings can begin. This is especially the case for tax liens, since those liens can be sold online rather than in person. A property owner is also required to respond to a notice put out by the collection agency.
Spousal issues, such as a nuptial agreement, may place limits on the amount that the government is able to collect. An example would be when it can be shown that the other spouse is solely responsible for the property tax debt.
There are some exceptions. The government may grant an extension of the proceedings for an unavoidable absence or an undue hardship.
What is a Right of Redemption?
There are many jurisdictional statutes which provide a property owner with a right of redemption. A right of redemption involves a redemption period in which a property owner can redeem their property after it has been sold in a tax sale auction.
Depending on the state, the time period for the right of redemption may range from six months to one year. The individual must follow certain strict requirements in order to redeem their property and re-obtain the title. For example, the individual must typically pay the amount which was paid at the auction, plus other fees.
Do I Need a Lawyer if I Have a Tax Sale Issue?
Yes, it is essential to have the assistance of a real estate lawyer with any tax sale issues you may have. Tax sales can be very complex procedures.
Your lawyer can provide legal advice regarding the laws in the area. In addition, if you have to file a legal proceeding, or if you need to contest a tax sale, your lawyer can provide you with representation for those issues as well.
