We’re often asked how to bid for unpaid property tax bills at a tax sale. This correspondent is wondering how the system works, and if he pays back taxes on a piece of real estate would he then become the owner of the property.
Q: If I pay the back taxes on a property do I own it? My parents are about to lose our family home at a tax sale. I plan to go to the tax auction to bid on the sale. Would I be the sole owner of this property if I win the tax auction? I don’t want to share the house with them if I win.
A: There’s clearly a lot to unpack in your short email. We’ll get to the emotional baggage in a moment.
Here’s a little background on tax auctions. Usually when a homeowner fails to pay his or her real estate taxes, the taxing body has the right to sell the home to satisfy the debt owed to the government. The theory is that it’s of utmost importance that governments receive the funding they need and if homeowners fail to pay the amounts they owe, the government can sell the property and receive payment for the delinquent amount.
While that doesn’t sound particularly complicated, in practice the process can be. When the taxing body (often, the tax assessor) sends out tax bills, the homeowner has a certain amount of time to pay the bill. Once that real estate tax bill remains unpaid for a certain amount of time, the taxing body can sent out a notice to the homeowner that the home will be sold for unpaid real estate taxes. The taxing body may then publish the owner’s name and the addresses of properties that are due up for the tax sale at a specific date in the future.
Timing is a critical factor. For example, if the taxing body sends out real estate tax bills on January 1 and that bill is due on February 1, if the bill remains unpaid, the homeowner will have to pay interest on the amount owed on the bill at a rate of, say, 18 percent per year. That’s a pretty high interest rate. Until the homeowner pays the bill, the unpaid amount continues to accrue interest at that rate. The homeowner can pay off the amount owed at any time along with the interest. As the bill remains unpaid, the next step is for the taxing body to publish the delinquent tax bills to give public notice of all those unpaid tax bills.
The homeowner has about a year or two, depending on the jurisdiction, before the taxing body sets up the tax sale. At the tax sale, the amount owed to the taxing body plus any interest that has accrued, is sold. Anyone can bid to buy the unpaid taxes, and there is generally an auction so that the municipality can get the most money possible.
For many people, this is confusing: Why would anybody bid an amount that might differ from the amount the homeowner owes?
A tax buyer may have different investment opportunities. Let’s say the tax buyer has $10,000 to invest and the homeowner owes $10,000 in back taxes. The tax buyer can put his money in a savings account and make almost no money or can put the money in the stock market and risk the ups and downs of the market, or can bid on the $10,000 tax bill owed and if he or she wins the action, might make up to 18 percent on that money. Other people may also bid on the tax bill, some might bid more than the $10,000 in the hopes of winning the auction. They may earn less than the 18 percent, but may still get a good enough return to make the whole endeavor worthwhile.
Here’s another point of confusion: When the tax buyer wins the auction, the property itself does not change hands. What the tax buyer has won is the right to collect back taxes plus interest and that can lead to owning the property down the line. The homeowner still has the right to come forward and pay off the debt owed for the unpaid tax amount plus any accrued interest.
If the homeowners does pay off the amount owed along with interest and other penalties, the tax buyer gets his money back along with interest. But if the homebuyer fails to come forward at any time, eventually the tax buyer will get title to the home. In some states it can take several years before the tax buyer gets title to the property.
And, if the tax buyer does get title to the property and the homeowner has taken no action to save the property, the tax buyer will become the exclusive owner of the property and can even kick out people living in the property and move into the property himself.
In your question, you indicated that you’d want to buy the taxes at the tax sale and end up owning the property. You should know that if you bid on the tax sale and win, your name will appear as the winner and your name will show up as the tax buyer for the property.
It sounds as though the relationship between you and your family is problematic. You should know that because your name as the winner will be in the public domain, it seems likely that someone in the family will find out that the taxes were sold and who bought them. If and when they pay up and redeem the property, they finding out that you knew and said nothing to them. And, that could present another difficult situation.
We don’t know your motives or what your family interactions are so we can’t address those in this answer. Good luck.
(C) 2017 by Ilyce Glink and Samuel J. Tamkin. Distributed by Tribune Content Agency.