Skip to main content

Search

Home Foreclosures: 16.3.1.1 Overview

It may be possible to avoid a tax lien and eventual sale by obtaining a reduction of property taxes through an abatement or exemption before the taxes become delinquent. Homeowners may pay too much in property taxes either because the assessment of their property is too high or because they have not taken advantage of available tax relief programs or exemptions.64 By successfully challenging an excessive assessment the homeowner can reduce their tax burden accordingly.

Home Foreclosures: 16.3.1.2.1 Assessment exceeds taxable value

Subject to the limitations of local statutes and case law, there are basically two grounds on which a property assessment can be contested: the assessment exceeds the property’s taxable value, or the property is disproportionately assessed. For special tax assessments that are created under loan programs, such as the Property Assessed Clean Energy (PACE) program that provides financing for energy efficiency improvements, it may be possible to challenge the assessment on other grounds if the assessment was obtained fraudulently.65

Home Foreclosures: 16.3.1.2.2 Property is disproportionately assessed

An assessment is also subject to challenge on the grounds that the property is disproportionately assessed. That is, the property’s assessment is higher than assessments of similar properties in the area. The ratio of assessed value to market value should be the same for all homeowners within a taxing jurisdiction.

Home Foreclosures: 16.3.1.3.1 Special tax relief programs: Overview

Every state has enacted special property tax abatement or exemption schemes that relieve at least some taxpayers of a portion of their property tax liability by virtue of age, disability,85 income level,86 or personal status (e.g., firefighter, police officer, veteran, or disabled veteran).87 All states have approved tax relief for older homeowners, and some states extend this relief to older renters as well.88

Home Foreclosures: 16.3.1.3.2 Types of programs

The extent of any relief available under state programs will depend on the type of program and method of calculating relief. While these programs vary as much as state property tax laws, the following methods are the most widely used.

Home Foreclosures: 16.3.1.3.3 Seeking tax relief

A common problem in many localities is that taxing authorities never establish a procedure for evaluating and granting the abatements, exemptions, or deferrals which are provided under state law. An unrepresented homeowner seeking an abatement may walk into an assessor’s office and find that knowledge of state standards for tax relief is nonexistent.

Home Foreclosures: 16.3.1.4 Agreement and Compromise

Some states preclude abatements once a homeowner has fallen behind on tax payments.113 Whether or not an abatement is available, a defaulting taxpayer may be able to reach an agreement with the taxing authority to compromise the outstanding tax bill.

Home Foreclosures: 16.3.1.5 Deferred Payment Plans

Property owners who have missed several tax payments often find it difficult to cure a tax default by making a lump-sum payment, particularly when interest and penalties have been added to the outstanding balance. Just as mortgage servicers have seen the benefits of forbearance and loss mitigation programs, some local taxing authorities permit property owners to enter into payment plans to avoid a tax sale.

Home Foreclosures: 16.3.1.7 Interest on Taxes

If a taxing authority is charging interest and penalties on unpaid taxes, it is worthwhile checking its statutory authority to do so. In a Pennsylvania case, the court rejected a municipality’s attempt to charge eighteen percent interest on taxes under the authority of its home rule charter.125 The court limited the municipality to a ten percent interest rate allowed by a state statute.

Home Foreclosures: 16.3.1.8 Relief from Tax Sales for Military Personnel

The Servicemembers Civil Relief Act restricts tax sales of real property owned and occupied by a servicemember or their dependents while the servicemember is on active duty.128 In such cases, non-judicial tax sales are prohibited because tax sales must be approved by court order.129 In addition, if the taxing authority seeks a judicial order for the sale of the property, the court may stay the tax sale until up to 180 days after the servicemember’s period of active duty ends.

Home Foreclosures: 16.3.2.1 Overview

Once a tax delinquency has occurred, the tax authority or collector will usually proceed to sell the property. To have the best chance of preventing or delaying the sale, the homeowner should act quickly. The grounds on which a homeowner can contest a tax sale, while limited, are well worth exploring.

Home Foreclosures: 16.3.3.2.1 Generally

Because the property tax lien and sale are entirely created by statute, courts have generally held that all statutory requirements must be substantially followed in order to have a valid sale.155 Typically, a challenge to a completed tax sale arises in one of two ways. After the redemption period has expired, in many states, the tax sale purchaser must request that a tax deed be issued.

Home Foreclosures: 16.3.3.2.2 Defects in the tax lien or in the tax sale process

Statutes governing tax sales and the steps leading up to them must be strictly followed before an owner may be deprived of their property by sale.167 If these steps are not followed, the deed issued from such sale may be set aside.168 Slight irregularities may not be enough for a court to invalidate a sale,169 but defects which prejudice the rights of the owner, such as the failure to give proper notice, probably will.

Home Foreclosures: 16.3.3.2.5 Purchaser’s lack of legal authority to bid

If the purchaser at the tax sale is a governmental entity, another question to investigate is whether the purchaser had statutory authority to bid. The state may require public bodies to notify the public and go through various procedures before making major expenditures. There may also be statutory limitations on when a taxing authority can make a bid on a tax debt.

Home Foreclosures: 16.3.3.2.6 Excusable neglect

A taxpayer’s excusable neglect in failing to respond to a tax sale foreclosure action may justify setting aside the sale under state court rules akin to federal Rule 60(b), if the tax foreclosure process involves a judicial proceeding.185 For example, in Bergen-Eastern Corp. v. Koss,186 a seventy-four-year-old widow with a history of continuing, serious psychiatric problems received notice of the tax sale but failed to respond until the eviction proceedings.

Home Foreclosures: 16.3.3.2.7 Equitable grounds

Courts are willing to set aside tax sales on equitable grounds when the taxpayer was misled by the taxing authority. A tax sale was set aside by the court when the taxpayer had made substantial payments of taxes due prior to the sale but allowed the sale to proceed when he did not make full payment or enter into an installment payment plan.

Home Foreclosures: 16.3.3.2.8 Inadequacy of sale price

Except in bankruptcy as discussed below, absent fraud, suppression of bidding at the sale, or other unfairness, the inadequacy of the sale price is usually not enough to invalidate the sale.190 A price that is grossly inadequate or an inadequate price coupled with some irregularity or unfairness in the foreclosure process may be grounds to set aside a sale under state law.191

Home Foreclosures: 16.3.3.2.9 Avoidance in bankruptcy as fraudulent conveyance

Under section 548(a)(1)(B) of the Bankruptcy Code, a transfer may be avoided if the debtor received less than a reasonably equivalent value for the transfer at a time when the debtor was insolvent.192 Prior to the Supreme Court’s ruling in BFP v. Resolution Trust Corp.193 when a home was sold at a mortgage foreclosure sale for an amount significantly less than market value, the sale could be set aside as a fraudulent conveyance under this provision.