The Consequences of Not Paying Property Taxes

by Wilhelm Schnotz
Eventually, your property is seized if you don't make tax payments on it.

Because property taxes are collected by municipalities rather than the federal government, you might be tempted to view skipping property tax payments as a transgression with smaller consequences than skipping an income tax payment. Don’t fall into that misconception: Nonpayment of property taxes can have severe, if not immediate, ramifications that can lead to losing your property.

Interest Charges and Fees

Ignoring that tax bill won’t make it go away. In fact, it will just make the bill larger. To encourage timely payments, many municipalities assess fees and interest charges on unpaid property taxes. While local laws determine the extent of these charges and how they’re handled, many homeowners receive a grace period after the due date before extra charges begin accumulating. Because these measures are meant to be punitive, interest might accrue at a rate much higher than market rates.

Tax Lien and Lien Sale

If your property tax bill goes unpaid long enough -- the length of time varies by local law -- the taxing district places a lien against the property for the amount due, including interest payments and other fees. These liens are then sold at an auction to investors, who pay outstanding property tax bills for the property, plus administrative fees. In return, they receive claim on any payment you’ll make on the bill. You’ll be assessed an additional charge, known as redemption interest, on top of the original bills as a return on the lien buyer’s investment.

Redemption Period and Deeds

Once a third party purchases the lien to your property, the clock begins to tick on your redemption period. During this period, which is defined by state or local law and is usually two or three years, you receive a final opportunity to pay your back taxes, plus interest, fees and redemption interest. If you pay the tax bill, the investor receives your payment and relinquishes any claims on the property. If you fail to make the payment at the end of the redemption period, the lien holder receives a title deed to your property. You forfeit your property, and it’s transferred to the investor.

Mortgage Consequences

Because nonpayment of property taxes can cause a property owner to forfeit his home in the tax lien process, lenders construct mortgages to protect themselves from losing their stake in the property. Mortgages require property owners to make property tax payments, and avoiding these taxes is a violation of the mortgage agreement that allows lenders to begin foreclosure proceedings. Many lenders will take this route to liquidate the home and leverage their investment in the property before it’s seized, and pay off property taxes or liens as part of the proceedings.

About the Author

Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.

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