Home, first-time buyers, mortgages

Mechanics of Real Estate Taxes

The real estate taxes assessed by the local taxing authority have primary lien on the property. This primary lien means that they are the first to be paid from any sale of the property.
This lien also allows the taxing authority—or their assigned agent—to foreclose on the property if the property is not paid.
Note that if the county, for example, were to foreclose on a property, all of the mortgages on that property would be automatically cleared from the title. This is why mortgage lenders insist on verifying that the taxes are paid. However, most local governments do not want to deal with the hassle of foreclosures. So, instead, they opt to sell the tax defaults. By selling the (past-due) tax certificates, the government recoups its tax revenues immediately.
The investors who purchase these tax defaults have basically purchased a secured debt. The property owner now owes these tax payments to the investor holding the tax certificate. If the delinquent property owner does not redeem these tax certificates within six to 24 months, depending on the property or locale, the investor has the right to foreclose on the property.
In summary, the typical process would be as follows:
1. Property owner does not pay real estate taxes.
2. After one year, depending on locale, the government auctions the tax certificate on the property.
3. An investor bids for the tax certificate.
4. The property owner is provided a redemption period of six to 24 months, depending on locale, to pay back the past-due taxes, plus 15%-25% redemption penalty. With owner-occupied residential properties, most counties will allow longer redemption period.
5. If the property owner redeems the property, the investor regains the initial auction bid, plus 15%-25% interest.
6. If the redemption period passes without repayment, the investor can begin foreclosure proceedings.
7. At the end of the foreclosure proceeding, the investor receives the Tax Deed to the property.
This tax deed will have no other liens on the property, except for current tax liens. The court will issue an order removing all mortgage and other non-governmental liens currently on the property. The real estate investor receives the property “free and clear” of any liens.