What Is a Tax Lien Foreclosure?
The judicial foreclosure process, which is used to foreclose on tax liens, is when the local government forecloses on a property because the owner has failed to pay their delinquent taxes. Texas has some of the highest property taxes in the country, resulting in many people not being able to afford to pay. When a property owner in Texas fails to pay what they owe, the government enforces their tax lien. The tax lien certificate serves as a legal claim against the property for the amount unpaid in taxes.
A property with unpaid taxes can’t be refinanced or sold by the owner until the outstanding taxes are paid, which may occur during closing. If left unpaid, the home could end up in foreclosure, and the judgment rendered will be on public record filings when someone is reviewing the property owner’s credit score.
Things you might be surprised to learn about tax lien foreclosures:
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They can happen over very small amounts of money. When you hear the word “foreclosure” you may think of expensive monthly mortgage payments, but failure to pay your property taxes, even an amount as small as $100, can result in a tax lien foreclosure. As well as keeping up with your property taxes, we recommend ensuring your loved ones are doing the same with their own properties, and everyone should be vigilant about updating their addresses when they move.
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Once a property owner has a tax lien judgment, the subject property often quickly becomes available for purchase to the highest bidder via public auction. There are investors who spend their careers buying up properties with tax liens because these properties may be bought for much less than the property’s market value, and many public auctions allow online bidding so people from other areas can participate.
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There is a redemption period. The Texas Tax Code has what’s called the Right of Redemption. Most states give you a chance to buy your property back after a tax lien foreclosure by paying the lien, back taxes, a premium to the buyer, and any other fees. Details vary by property type, so it is always best to check with your attorney.
An owner of real property or a mineral interest sold at tax sale can redeem their property on or before the second anniversary of the date on which the purchaser’s deed was filed for record, provided they meet the following criteria:
- The property was sold to a purchaser other than a taxing unit
- The redeemer was the owner of the property at the time of tax sale
- At the time the suit or application for the warrant was filed, the property was being used by the owner as a residence homestead or as land designated for the agricultural use.
- The purchaser has paid the bid amount for the property, the amount of the deed recording fee, the total amount of taxes paid by the purchaser, as well as any penalties, interests, and costs on the property. In addition, a redemption premium of 25% of the aggregate total of the property is redeemed during the first year of the redemption period, or 50% of the aggregate value if the property is redeemed during the second year of the redemption period
Under Texas Property Tax Code *34.21(g)(2)(A)(i)-(v), “costs” refer to the amount a purchaser reasonably spends to maintain, preserve, and safeguard real property sold at a tax sale, including the expense of:
- Insurance for property
- Safekeeping, maintaining or preventing damages to the property
- Repairs or improvements required by a local ordinance, building code, or a lease in effect at the time of sale
- The discharge of a lien imposed by a municipality in remedying health or safety hazards
- An assessment or dues for maintenance collected by a property owners’ association under a recorded restrictive covenant
How to Prevent a Tax Lien Foreclosure
If a tax lien is placed on your property due to overdue property taxes, your first reaction may be to panic - and who can blame you? The existence of the tax lien leads to the very real possibility of your property being sold from under you. The threat of foreclosure is a frightening prospect, especially if you cannot afford to settle the tax debt. Even in the extreme situation where the total debt owed is not within your means, you can still prevent the worst from happening. There are at least three actions you can take to prevent foreclosure.
Once a property owner in Texas faces a tax lien judgment, there is always a risk that the local taxing authority may initiate foreclosure proceedings. However, before it reaches that point, property owners may find themselves dealing with a property tax collection lawsuit in Texas. These lawsuits are often initiated when property taxes remain unpaid, leading to further financial pressure. Understanding how to navigate such a lawsuit can be critical in preventing foreclosure and resolving your outstanding property tax debts.
1.Sell your property: If you can secure a sale before your local tax authority decides to auction your property off, you could potentially fetch a high enough price to settle the debt, and perhaps be left with enough money to purchase or rent a smaller property and recover from your constrained financial situation. It is still not an ideal solution, but it enables you to take control of the situation, try to get the price you would want, and prevent a foreclosure from showing up on your credit record.
2.File for bankruptcy: If your financial position has reached such extremes, bankruptcy may actually be the best option. However, this is only a temporary solution and comes with substantial costs. You will still owe the taxes, but you will be able to buy yourself some time. This is not an optimal choice, but it may help, especially if you are unemployed or your business struggling. Bankruptcy would be your absolute final choice, only to be used if you have no other other courses of action left open to you and often does nothing but cost you money.
3.Pay the taxes: The easiest option is simply to settle the debt. We know that is not as easy as it sounds. After all, if you could pay the taxes, you wouldn’t be in this situation. However, it is easily the best option, provided you get a little help. There are options open to you that actually make it quite easy to make a payment arrangement and keep your local tax authority off your back. You would not even have to consider the two options above.
You could either approach the tax office directly, explain your difficulties and make a payment arrangement, or you could apply for a property tax loan. Local tax authorities will almost always be willing to allow you to pay your debt off in installments, but their payment plans can be quite rigid, may subject you to retroactive penalties making it actually more expensive in the long run. A Texas property tax loan is actually the best option. Once you get approval for your loan, the lender will settle your debt immediately. You will be entirely square with your local tax authority. The tax lien does not then cease to exist, but is transferred to the property tax lender. However, that is nothing to worry about, because you can set up a repayment plan that suits your budget and schedule. Most importantly, this is a decisive action that prevents the tax lien foreclosure process from even getting started - or stops it in its tracks if it has already begun. You can rest assured that your property is safe, and pay the loan back in a way that makes the most sense to you.
In the unfortunate event that you lose your property due to unpaid taxes, you may still have options. Many homeowners wonder, can I get my property back after a tax foreclosure sale? In Texas, the answer is yes, thanks to the state’s Right of Redemption laws. This allows you to reclaim your property by paying the necessary amounts within a specified time frame, depending on the type of property. It’s crucial to act quickly and explore financial solutions like property tax loans to help cover these costs.
How property tax loans can help you
If you’ve fallen behind on paying your property taxes, then you know that the penalties and late fees can make your bill even more expensive, creating a hole that’s difficult to dig your way out of. We recommend partnering with a property tax loan company that will help you pay your property taxes so you’re not at risk of a tax lien foreclosure.
Once the tax lien foreclosure process starts, it can be difficult and frustrating to get your property back. There’s a risk that your property will go to auction and be bought by someone else, and while in some circumstances it may be possible to reverse the tax lien foreclosure, it can be a lengthy, expensive process. Rather than risk having your property purchased at an auction, it’s much easier to apply for a property tax loan that allows you to keep your home. Many tax loan companies will work with you to create a solution for your circumstances.
About AFIC
Founded in 1946, American Finance & Investment Co., Inc. (AFIC) started by serving the financial needs of El Paso and has since grown to become one of the top property tax lenders in the state of Texas, with a complaint-free track record for over 65 years with the Better Business Bureau.
We offer our clients an affordable, hassle-free way to ensure that your account with the local government tax office is paid in full and will work out a manageable repayment plan for you. AFIC can provide you with an instant quote by completing the form on our homepage. For qualifying properties, we can help you pay off your delinquent property taxes and offer you the following benefits:
- Quick and completely online process
- No money down
- No credit check
- Free 30-day rate match
- Match competitors and beat their rate by 1%
- Avoid high penalties and foreclosure
We pride ourselves on finding solutions to suit the unique needs of our clients. If you would like to discuss our property tax loans, please contact our experienced team at AFIC today.
