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What is a Delinquent Tax Sale?

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  • Written By: Dale Marshall
  • Edited By: Jessica Seminara
  • Last Modified Date: 25 August 2016
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In the United States, a delinquent tax sale is an auction, usually conducted by a county government, to recover unpaid property taxes. There are two types of delinquent tax sale: a tax lien sale and a tax deed sale. A tax lien sale obliges the purchaser to pay the delinquent taxes, in return for which she gets the right to collect those amounts, plus interest, from the property owner. If the purchaser is not repaid within a certain period of time, usually from one to two years, she can foreclose on the property. A tax deed sale, on the other hand, immediately gives the purchaser title to the tax-delinquent property, although the original property owner may still have some rights to repay the debt and recover the property.

Most county operations in the US, such as schools, law enforcement, fire protection and road maintenance, are funded by taxes assessed on property owners. When these taxes aren’t paid, the county’s ability to pay for the services it provides residents is severely impaired. To recover the revenue lost, a county conducts a delinquent tax sale. About half the states in the US provide for the auction of delinquent tax liens, while in the other half, the deeds themselves are auctioned. The rules, procedures, requirements and deadlines for such sales very greatly across the country, and potential bidders should consult with the appropriate county authorities before placing a bid.

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When property taxes become delinquent, a tax lien is placed on the property, which can be removed at any time by payment of the taxes, penalties and interest due. Most counties periodically auction either the liens, or the underlying properties, most commonly once a year. Before the sale, they’ll advertise it in the legal section of local newspapers for a specified period of time, usually at least four consecutive weeks. These ads note the property addresses and descriptions, taxes due, and instructions for bidding.

A tax lien sale is essentially a loan from the purchaser to the delinquent property owner, because the participants submit sealed bids specifying the interest rate they'll charge the property owner for redemption. There are many different ways to win a tax lien auction, according to the county’s own rules and procedures, but in all cases, the winner must pay the delinquent taxes immediately. Then, the original owner has a period of time called the redemption period — up to two years from the date of the tax lien sale — to redeem the property by reimbursing the taxes paid, plus interest. The purchaser can initiate foreclosure proceedings only after the redemption period has expired; and even in foreclosure the property owner can redeem the property.

The original owner keeps possession of the property after a tax lien sale and retains responsibility for all other costs, such as mortgage and utility payments. At any point in the redemption period, the original owner can redeem the property and recover the title. If this happens, the purchaser has no more claim on the property. Should the purchaser of a tax lien foreclose on a property, any mortgages or other liens are dissolved, except for liens imposed by the state or national government. To avoid this, most US mortgage lenders generally require borrowers to make monthly payments to an escrow account from which property taxes are paid periodically, instead of letting them pay taxes themselves and perhaps fall delinquent.

Tax deed sales are a different type of delinquent tax sale. Instead of auctioning a redeemable tax lien, the actual deed to a property is sold, which may or may not be redeemable, depending on the state in which the auction is held. The sales are conducted only after all lienholders have been alerted, with the highest bidder winning title to the property. When a bidder wins a tax deed sale, any subordinate liens such as mortgages and mechanics’ liens are dissolved; only state and federal liens survive a tax deed sale.

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