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1.2.12 Is the Foreclosure Pursuant to a Property Tax Lien?

If a homeowner’s property taxes are not paid by the date set by statute, the unpaid taxes become a lien on the property. If the tax lien is not satisfied by payment, the taxing authority may initiate the tax sale process. The sale process varies depending on the locality. In some jurisdictions the property is sold; in others a certificate or lien is sold. In other states, no sale occurs at all, and the taxing authority simply takes the property. In all states, however, the taxing authority must follow all statutory requirements.

Generally, after a tax sale, the taxpayer has the right to redeem the property by paying the taxes within the redemption period. In some states, once the redemption period expires, if the taxpayer has not redeemed, title is automatically issued to the tax sale purchaser. In other jurisdictions, the tax sale purchaser must bring a foreclosure action to cut off the right of redemption.

Prior to a tax sale, homeowners can take steps to minimize their tax liability. An assessment may be challenged if the assessment exceeds the property’s taxable value. In most states, challenges must be filed immediately after the issuance of the tax bill, and in some states must be accompanied by payment of the tax. Homeowners may also minimize their tax liability by applying for an abatement. See § 15.3.1, infra.

A homeowner may contest a tax sale. If the tax sale is by judicial process, the taxpayer can raise defenses such as the property’s exemption from taxation, lack of statutory authority for the tax, lack of statutory authority for the taxing official’s actions, fraud, and payment. See § 15.3.2, infra.

If the tax sale is a non-judicial process, which most are, the taxpayer must initiate legal action to prevent the sale by injunction. There may be significant procedural obstacles to such an action. Taxpayers may be required to exhaust administrative remedies or to pay the disputed tax and then sue for its return. Nevertheless, there may be grounds to seek an injunction when the tax creditor is fully secured by the equity in the property. See §, infra.

Tax sales involve state action and are therefore subject to due process requirements. Due process requires adequate notice, which means notice by mail in most cases. Due process also requires a full and adequate opportunity to protest, at a hearing. See § 15.3.4, infra.

After the tax sale an advocate may attempt to overturn the sale. A tax sale may be set aside when there are defects in the sale process. The sale must substantially comply with the state tax sale statute. Advocates should consider the following:

  • Can the sale be declared void or collaterally attacked because the taxes are not owed or have already been paid? See §, infra.
  • Was there fraud or error either in the sale process or in the imposition of the tax that would render the sale void? See §, infra.
  • Can the tax sale be set aside based on the taxpayer’s excusable neglect in failing to respond to a tax sale notice? See §, infra.
  • Are there equitable grounds to set aside the sale, for example, when a taxpayer has been misled by the taxing authority? See §, infra.
  • Was there such a gross inadequacy of price or an inadequate price coupled with irregularity or unfairness in the sale process that may be sufficient to justify setting aside the sale? See §, infra.
  • Does the homeowner still have the right to redeem the property? If so, can the homeowner pay the redemption amount or do so in a chapter 13 bankruptcy? See § 15.4, infra.