Most mortgage lenders require you to pay into an escrow account, and the lender, through its servicer, then pays your property taxes and insurance from that escrow account. Even if there is not enough in your escrow account, the servicer will typically pay your property taxes. You could eventually face foreclosure on your mortgage loan if you do not pay what you owe into your escrow account. Your servicer will usually do the same even if you do not have an escrow account—in that case, you face foreclosure if you do not repay the servicer for the taxes it has paid for you.
On the other hand, if you own your home free and clear of a mortgage, then you are responsible for paying the property taxes on your home. Failure to do so could eventually lead to a “tax taking” of your home and the eventual loss of your ownership of your home.
Challenging the Assessment. Your property taxes are based on the assessed value of your property, and you can reduce your property tax by successfully challenging your home’s assessment. You can challenge that the assessed value is too high. More commonly, homeowners claim that their home is assessed for more than comparably valued homes in the neighborhood. How much other homes are assessed for and what their characteristics are is a matter of public record and may even be available online. Otherwise, your local assessor’s office will have the assessment information.
You do not need to hire an expert to value your home or that of other similar homes in your community, although that can certainly help. You can testify yourself and you can also represent yourself without a lawyer. You initially challenge an assessment not in a court, but before a local tax board, agency, or company hired by the tax assessor that will have looser procedures and requirements than a court. If you lose your challenge, you typically have the right to go to court to appeal the ruling.
Often you only have a short period of time after a new assessment or a tax bill to challenge the assessment. Be sure to meet all deadlines. Some states require you also to make full payment on the tax bill or at least the amount you are not contesting while the assessment is being challenged. Although it may seem that you are not gaining anything if first you have to pay the full amount before challenging that amount, this is not the case. If you win, not only will you receive a refund of the excess amount you paid, but your tax bills will be smaller for years into the future.
Abatement, Exemption, and Deferral Programs. Every state has a program to lower or delay property taxes for at least some homeowners, often called abatement, exemption, or deferral programs. Typically, you will not be offered these programs unless you ask for them. A surprising number of homeowners are eligible for these programs, but never request them. It pays to check if you qualify.
Each state’s program is different, but states may provide relief for disability, low income, or personal status (such as veteran, disabled veteran, firefighter, or police officer). Every state has relief for older homeowners. Often if the spouse qualifying for relief passes away, the other spouse can continue receiving the relief. If you do not qualify for any of the categories of relief available in your state, some states let tax assessors grant hardship exemptions for age, infirmity, or indigence. In some states general information about the programs can be found on tax bills.
To request relief, you submit an application with proof of your eligibility. Often this must be done shortly after you receive a tax bill, or you will have to wait until the next bill to apply. One frustrating thing about seeking this relief is that, while you are legally entitled to it, some assessor’s offices are not familiar with the programs or discourage people from applying.
But your home may be at stake, so be persistent. If necessary, find out on your own about your state’s programs and educate the assessor’s office about them. You may be able to get help with this at your local legal aid office. If need be, go to court to press your rights, after documenting as much as possible what happened at the assessor’s office.
The amount of relief available will depend on the state program and the nature of your application. In some states, the tax amount is reduced to a more affordable level; in other states it is reduced by a fixed percentage. Some states freeze the property’s assessment for older homeowners so that the assessment does not increase after a certain trigger date. Other programs do not permanently reduce your tax bill, but defer when you have to pay all or part of the tax to sometime in the future, such as when you sell the house. Some states also let older or indigent homeowners perform community service instead of paying taxes.
Deferred Payment Plans. If you are behind on several property tax payments, you will also owe penalties and interest. Some (but not all) taxing authorities permit you catch up on what you owe in installments to avoid a tax sale of your home. You will have to pay something toward your overdue balance while at the same time keeping up with new tax bills. This may prevent you from being charged more penalties if you stay current on the payment plan.
Compromising on Outstanding Tax Bills. The taxing authority may have the power to reduce your delinquent taxes or to waive penalties and interest. This is another avenue to consider, but be aware that this is not available in some states. You often have to pay the “compromised amount” in one lump sum.
Contacting Your Mortgage Servicer. If you still have a mortgage loan on your home (even a home equity line of credit), a good approach is to contact your servicer for help. Even though the servicer has not required you to pay into an escrow account, the servicer still has a strong self-interest to avoid a tax sale. The tax sale is likely to bring in far less than the amount owed for taxes and the mortgage, and the taxing authority has priority over your mortgage servicer to receive the proceeds first. If the servicer takes no action to help you, it stands to lose a lot of money. The servicer can help by paying the back-taxes for you and then have you repay that amount over time as part of a repayment plan or through an escrow account it sets up on your mortgage.
A Chapter 13 Bankruptcy. A chapter 13 bankruptcy filing will invoke the “automatic stay” which prevents any tax sale process from continuing. After the automatic stay is in place, you can set up a plan whereby you pay the delinquent amount in installments over 36 or even as many as 60 months.
Special Rights Of Military Personnel. Active-duty military personnel have special protections against tax sales where the home is owned and occupied by the servicemember or the servicemember’s dependents. These protections apply even if a co-owner owes the taxes.
Any tax sale must first be approved by a court and the court can “stay” (a “stay” is legalese for “stop”) a tax sale for up to 180 days after the servicemember’s period of active duty ends. Interest on unpaid taxes is limited to 6%, no penalties can be assessed, and, if there is a tax sale, the servicemember can redeem the sale up to 180 days after leaving active duty. (Redeeming the sale is discussed below.)
Once a tax sale has been completed, typically either you manage to redeem the home, as described in the next section, or you lose the home. A third possibility is to find grounds to go to court to set aside the completed tax sale. The grounds to do this are very limited and to even try, you will need a lawyer to investigate why the sale was illegal. Was notice improper? Was the tax sale conducted improperly? Were the taxes no longer due? Was there fraud? Did the purchaser have the authority to purchase? Did the taxing authority mislead the homeowner? Typically, low sale price is not grounds to set the tax sale aside.
In most states, even after the tax sale has been completed, you still have a chance to save your home through a process called “redemption.” You have a specified period to do this, and this deadline is strictly enforced, so it is critical that you determine and act within the deadline for your state.
Often you have as long as a year to redeem. But time periods vary, and the redemption will be much simpler and often for less money if you act quickly after the tax sale.
To redeem, you have to pay the entire unpaid taxes, penalties, interest, and the costs and expenses incurred by the purchaser at the tax sale. Typically, someone facing a tax sale does not have the cash to make this large lump sum payment. On the other hand, many homeowners facing a tax sale do not have a mortgage on their home—usually if there is a mortgage, the servicer would have paid the property taxes to avoid the sale, and then there would not be a problem of unpaid property taxes.
Having a home free of a mortgage may make it possible to borrow the redemption amount with a new mortgage or with a reverse mortgage. But avoid any lender who seeks you out. Scammers search lists of tax sale properties and contact desperate homeowners with rip-off deals that will just make matters worse for you. If your home equity is a lot more than the redemption amount, you should be able to obtain a legitimate mortgage loan and avoid predatory lenders.
Another option is to ask the purchaser at the tax sale if you can pay the redemption amount in installments. But be careful of the terms. Some speculators purchase at tax sales to take advantage of the homeowner’s desire to redeem. They offer homeowners fraudulent sale-leaseback schemes or high-rate loans.
You can also file a chapter 13 bankruptcy and pay the redemption amount in installments on terms you propose and that are approved by the court. Contact a bankruptcy attorney to see whether you have three or even five years to spread out the redemption amount, or whether the amount must be fully paid before the redemption period expires. Also ask the bankruptcy attorney if there are other advantages to redeeming through a chapter 13 bankruptcy.
If your home has been foreclosed on, and the property has been sold at a tax sale, please contact Titus Law Firm, LLC to determine if you are entitled to a tax surplus payment.