When the property tax bill comes in the mail, taxpayers often ask, ‘What if I don’t pay this?’ And they pay—because there will be consequences. But what, exactly, are those consequences?
What Is a Property Lien?
When property taxes go unpaid, the local tax authority puts a lien on the property. Once that lien is placed, there are a number of secondary steps they can take to recoup the property taxes. These might include:
- Tax Deed Sale: The taxing authority sells the property outright, and the purchaser gets a deed to the property.
- Tax Lien Certificate Sale: The taxing authority sells the tax lien, and the purchaser gets the right to collect the debt, along with penalties and interest. Then, if the delinquent dollars aren’t paid, the purchaser can foreclose or follow other procedures to convert the certificate to a deed.
In some jurisdictions, however, the taxing authority takes the title to the home through the execution of the lien itself.
What Happens If Taxes Are Sold?
Many states, including Illinois, allow the homeowner to buy back the home after a tax sale by paying the buyer the amount paid, plus interest within a specific timeframe. In other states, homeowners have this opportunity before the sale takes place.
Although property tax liens generally take priority over other liens, and because the sale of a property tax lien wipes out the mortgage, the mortgage services can advance money to pay delinquent property taxes so that it doesn’t lose out on the mortgage money during a tax sale. However, that means that those dollars will still need to be paid back by the borrower, and the terms generally include language about the borrower staying current on the property taxes. Then, if the borrower doesn’t pay the property taxes on time, they would be in default under the terms of the mortgage, and the servicer would then be able to foreclose on the home, the same way they would have been able to if the borrower fell behind on monthly payments.
Additionally, mortgage services will usually demand that the borrower set up an escrow account for the loan to ensure that money is set aside to cover the property taxes so that they aren’t delinquent again.