What exactly is a "Tax Sale"?

Feb 22, 2024 By Triston Martin

The taxing authority may sell a taxpayer's real estate in a "tax sale" process when the taxpayer reaches a predefined amount of arrears in payments toward unpaid property taxes.

Remaining Property Taxes

The term "tax sale" refers to the sale of real estate resulting from unpaid property taxes. The property in question and any unpaid taxes are up for auction in a tax deed sale. In a tax lien sale, the liens affixed to the property are sold to a bidder, who then has the option of pursuing the collection of any unpaid bills. During the right-of-redemption period, which occurs soon before a tax auction, a property owner has the chance to reclaim their property and settle any back taxes owed.

Recognizing Tax Sales

For these transactions to be legitimate, each state has laws concerning tax sales that must be followed. Whether a state or municipal government is enforcing the tax requirements, the legislation will vary depending on that entity. The most fundamental requirement in most areas is that the taxpayer is given adequate notice to pay the delinquent taxes, and any sale resulting from the delinquency must usually be public to determine a fair price for the property. There is often a long waiting time before tax collection authorities get involved, which could last from several months to many years.

Serving the Internal Revenue Service

The minimum bid price is typically set at 80% of the property's value as determined by the forced sale, less any liens when real estate is put up for auction as part of a tax sale; this amount is derived from the property's fair market value (FMV), which is determined by the Internal Revenue Service (IRS). This is a rough estimate of the number of American jurisdictions that permit tax lien sales, including cities, townships, and counties. These jurisdictions represent 23 states.

Sale of a tax deed vs. a tax lien

A tax sale can occur in one of two ways when a property's property taxes are unpaid for a lengthy period. A sale of tax liens falls under the first category, and a sale of tax deeds falls under the second. Tax liens are sold to the highest bidder in a tax lien sale auction. This gives the winning bidder the authority to demand interest and the homeowner or property owner for lien collection. The successful bidder at the auction may use their power to foreclose on the property if the property owner cannot pay the liens.

On the other hand, a tax deed sale entails selling the entire property in a public auction, together with any unpaid taxes. Following the sale of a tax deed, jurisdictions may grant a right of redemption. Returning to the buyer, the amount they paid for the property during the tax deed sale enables a homeowner to recover their property within the given time limit of the redemption period.

What Are a Few Causes for Putting a Tax Lien on a House?

Delinquent tax bills, such as property taxes, school taxes, municipal water or sewer bills, and other municipal tax obligations, may result in tax liens on properties. The Internal Revenue Service (IRS) or a state tax body may also establish a tax lien on a home if income taxes are not paid when they are due.

How can I determine whether a house has any existing tax liens against it?

Tax liens can typically be found at a municipality's property records office and are regarded as matters of public record (or website). This is probably the municipal or county clerk's office or the tax assessor's office.

How Do I Buy a House Being Sold at a Tax Sale?

The public is informed in advance of tax sales, typically conducted by a municipality in the form of an auction (for instance, through the sheriff's office). Publication of auction notices in local newspapers and online are both common occurrences. You might also ask a municipality directly by getting in touch with them. Remember that the property, not the person who once owned the house, will be the subject of the tax lien. This implies that the property buyer will also be liable for paying off the tax lien on the property before the title can be transferred.

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