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What to Do If You’re Facing a Tax Lien on Your Home

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The property taxes homeowners pay can fluctuate from year to year as taxes and property values rise. Sometimes this can cause a financial strain — but there can be serious consequences if you can’t pay the bill.

When your taxes go unpaid, the city or county that charges them will take action to recover the money owed to them. One way they do this is through a tax lien.

Here’s what you need to know if you’re facing a tax lien on your home.

Understanding tax liens

A tax lien is a legal claim by a local government to recoup the tax revenue they need to provide municipal services, said Brad Westover, executive director of the nonpartisan, nonprofit National Tax Lien Association (NTLA) in Jupiter, Fla.

When you have a past-due property tax bill, your local tax authority will eventually place a legal claim on your property to secure the payment of those taxes. As long as there’s a lien on your property, you won’t be able to refinance or sell your home without satisfying the lien.

Tax liens placed on your home by the local government are typically superior to other liens, such as those imposed by a mortgage lender. One exception to this rule, in some cases, is tax liens placed by the federal government, according to the NTLA.

Federal tax liens can also be placed on your property for unpaid taxes, though you might be able to refinance or sell your home. If you’re trying to refinance your mortgage and have a federal tax lien, you can request that the federal lien be made secondary to your mortgage lender’s lien to allow for the transaction to happen.

What is a tax lien certificate?

A tax lien certificate is a financial instrument that is issued to an investor after they purchase a tax lien. Local governments sell tax lien certificates — typically at an auction — to collect the money owed to them by property owners more quickly.

“The beauty of tax lien certificate sales is the private sector funds the local government so they can provide the services, and the delinquent taxpayer now has time to get their affairs in order to pay off those obligations,” Westover explained.

Westover said there are 30 states that allow the sale of delinquent property taxes to the private sector.

If you have a property tax lien on your home and the lien is purchased by a private investor at an auction, you would need to reimburse the investor in order to have the lien removed.

How to remove a property tax lien

There’s a straightforward process for removing a property tax lien on your home: Go to your local tax authority — whether it’s a tax assessor, tax collector, tax commissioner or treasurer — and pay your outstanding tax bill. And if you’re struggling financially, speak up.

“I think the worst thing to do is put your head in the sand and don’t raise your hand to friends and family (to say) that you need help,” Westover said.

The lien removal process becomes a bit more involved when your tax lien has been purchased by a private investor. Reach out to your local tax authority to gather contact information for the person who owns your lien. If you’re not able to repay the lien in one lump sum, ask the investor if you can possibly set up a payment plan or some other arrangement.

There is usually a predetermined time frame — say 12 months, for example — in which delinquent taxpayers can satisfy their tax debt; this is called a “redemption period.” After the redemption period ends, the tax foreclosure process begins and the investor might end up taking ownership of the property.

Still, the majority of homeowners with property tax liens don’t get to the point of tax foreclosure, Westover said.

How to avoid a property tax lien

If you want to take steps to avoid having a tax lien placed on your property in the first place, consider these practical tips from NTLA’s Westover:

  • Place your property taxes in escrow. If your mortgage lender doesn’t require you to have an escrow account established, you still might save yourself some stress if you set one up anyway. By doing so, you’ll be paying your property tax bill every month, and your lender handles the actual payment.
  • Apply for a homestead exemption as soon as you qualify to do so. The exemption can help cut down your annual property tax bill by reducing the taxable value of your home.
  • Appeal your property tax assessment with your local tax authority to potentially decrease the amount of taxes owed.
  • Budget wisely. Develop a budgeting system that allows you to separate your needs from your wants.

The bottom line

Having a property tax lien placed on your home can be a troublesome experience, but there’s a way out of the situation.

Be proactive in getting current on your taxes before your redemption period ends and avoiding a tax foreclosure. Tap your emergency fund, find ways to earn extra income or ask for assistance from loved ones. The last thing you want is to lose the home you’ve worked hard to purchase, maintain and make your own.

Additionally, the NTLA lists several government and nonprofit resources on their website to help homeowners sort through tax-related issues.


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