A new report (The Other Foreclosure Crisis) by the National Consumer Law Center (NCLC) sheds light on the growing risk to homeowners of delinquent property taxes. According to the report, annual property tax delinquencies now reach almost $15 billion nationally and the number of homeowners at risk of losing their homes to tax sales is growing. The report cites studies showing one in four households have an underwater mortgage and nearly 40% of families have recently experienced unemployment, foreclosure, mortgage delinquency or negative home equity.
Property tax sales, unlike many foreclosure sales in Iowa, can result in a home being sold for much less than the property value and without the same kinds of homeowner protections. Iowa’s tax sale procedure generally works as follows: When a homeowner fails to pay property taxes the tax obligation becomes an automatic lien on the property. The tax lien has priority over all other types of liens, including mortgages. If a homeowner is unable to pay off the tax lien an auction will be held. A tax sale “certificate” is sold to the bidder willing to take the lowest rate of interest on the certificate. While this may sound as though it affords the homeowner with some protection from high interest costs, the interest rate paid is still far higher than most investments are currently providing. For instance, even though someone today might be hard pressed to get a return of more than 1-3% on investments, the return on a tax sale certificate is often in the double digits. In fact, at least one source suggests Iowa is in the top five states providing the highest return to purchasers of tax sale certificates.
After a property has been sold at a tax sale, the homeowner has 21 months to “redeem” the property by paying the purchaser the purchase price plus interest, penalties and costs. Obviously, the quicker the taxes are paid, the lower the cost of the redemption. If a homeowner is unable to redeem within the time allowed, the purchaser of the tax sale certificate can obtain a deed to the property. In other words, a property worth several hundred thousand dollars might be sold at a tax sale for a fraction of the value.
If you’re facing a property tax sale contact Thompson Law Office discuss your options, including the filing of a Chapter 13 bankruptcy to delay the sale of the property and get the taxes paid before all other creditors.