What Do I Do If I Have Unpaid Real Estate Tax?

Real estate tax that goes unpaid is not a good predicament. Like a lot of types of unpaid taxes, it can result in serious consequences including home loss. No one deserves to get displaced from their home so what are the next steps when you realize you have unpaid real estate tax?

Personal Property Tax vs. Real Estate Tax

A lot of homeowners get real estate tax confused with personal property tax. There is one notable difference between the two in terms of what they include, but in general, real estate tax is another term for property tax.

  • Real Estate Tax: Also known as “real property tax”, it applies to property that is immovable. For example, the actual structure of your home cannot be moved nor can the land it was constructed on. If you own a home, you pay real estate tax through a monthly mortgage or through a direct payment to the tax assessor.
  • Personal Property Tax: This only applies to property that can be moved. It is basically any type of high value assets like a car, boat, RV, trailer, etc. It is personal property located on land you own.

How real estate tax is paid…

Property tax funds a variety of services that the government provides including schools, road, libraries and parks. They tend to go after these unpaid taxes aggressively.

In a majority of circumstances, the loan servicer (which acts on behalf of the lender) will collect the property taxes as part of the monthly mortgage payment. The collected amount is then used to pay the taxes on the homeowner’s behalf through an escrow account.

In the event that the proper amount is not collected and paid through the escrow, the homeowner is then responsible for the unpaid taxes. If the homeowner neglects them (intentionally or unintentionally), the delinquent amount then becomes a lien on the home.

How to find out what you owe…

The lender is not the only one that can take your house. The local government also has the ability to foreclose a property when real estate tax is owed. And because a lien can be placed on it, that foreclosure takes precedence over any mortgage with a bank.

  1. Contact your county or city tax collector’s office to find out what you owe. You will need the block and lot number from your tax bill to get this information.
  2. Set-up a payment plan with the local government organization. It can prevent the government placing a lien on the property.
  3. Make payments on time. Failure to do so can result in a mortgage default.

Consequences of Unpaid Real Estate Tax

There are some serious consequences associated with unpaid property tax. In worst case scenarios homeowners lose their property to a tax sale or foreclosure.

The taxing authority has the right to sell your home to satisfy any debt when the homeowner falls behind on real estate tax. It is either done through a standard foreclosure process, or after the taxing authority sells the tax lien that it holds, and the purchaser decides to move forward with a foreclosure.

How to settle unpaid taxes?

The loan servicer may sometimes work with the homeowner to provide an advance in funds to cover the delinquent unpaid taxes. The interest rates for the advanced funds may be extreme, but it may save your house.

Regardless if the property undergoes a tax deed sale or tax lien certificate sale, you have a right to redeem the home before or after a tax sale. In many states you have the option to buy back your home after a tax sale by paying the buyer the amount he or she purchased the property for in addition to interest.

The payments must be made with a designated time frame and the grace period does vary from state to state. Thankfully no state currently has a term that is less than a year.

Avoiding a Loan Servicer Foreclosure

While you do have rights regarding unpaid real estate tax you need to tread carefully. In most states property tax liens have priority over other type of liens, including mortgage liens and deed of trust liens.

When a home is sold through a tax sale it effectively wipes out any mortgages due to the priority. It is troubling because it places reliance on the loan servicer to advance the money owed. The servicer therefore has all the control in the reimbursement plan and the moment you fall behind again you are looking at default and the servicer can immediately foreclose the home, just like if you fell behind on mortgage payments.

Loan Servicer Escrow Accounts

As previously mentioned, some mortgages already have an escrow account connected with the payment plan to handle real estate tax. If you did not previously have an escrow, expect the loan servicer to create one after it demands payment for unpaid taxes along with penalties and interest you already owe.

The escrow is generally established to create some form of trust between lender and borrower. It requires the homeowner to pay an approximate amount of the real estate tax (often one-twelfth or higher) in addition to the monthly mortgage. It may also include covering additional expenses like homeowner’s insurance.

  • Pros: An escrow account attached to a mortgage for real estate tax saves you from paying more at the end of the year and accidentally deducting the wrong amount on a tax return. It provides less of a chance of falling behind on property tax again.
  • Cons: The downside is you are going to need to save more money each month to make payments. For families already getting by, this is a legitimate challenge. However, setting up an escrow with the loan servicer can avoid your mortgage from going into default and avoid foreclosure.

Conclusion

You rarely have much protection from the loan servicer that represents the lender in the event of a property tax lien, but if you are willing to play by their rules it will save your house and for most, that is enough incentive to play nice.

Unfortunately, most mortgages come with a clause that gives the lender the right to establish an escrow account for real estate tax, leaving you little choice in the matter.

Are you having trouble paying your real estate tax? Or are you facing foreclosure because of unpaid taxes? Contact a representative at Levy & Associates by visiting our website today.

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.

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