Tax Sale Definition

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Tax Sale Definition

What Is a Tax Sale?

A tax sale is the selling of a real estate property that occurs when a taxpayer falls behind on their outstanding property tax payments.

Key Takeaways

  • A tax sale is the selling of real estate because of unpaid property taxes.
  • A tax deed sale, which sells the property, including unpaid taxes, at auction, and a tax lien sale, which sells the liens on the land to a buyer who may subsequently seek collection of funds owing, are the two kinds of tax sales.
  • A property owner may pay off their tax obligation and recover their property prior to a tax auction, during a right-of-redemption period.

Understanding Tax Sales

Every state has its unique tax sale regulations that must be followed in order for these transactions to be lawful. The legislation will differ depending on whether the body demanding the taxes is a municipal or state government. The primary requirement in most places is that ample notice be provided to the taxpayer to pay the overdue taxes, and any resultant sale must normally be open to the public in order to receive an appropriate price for the property. Before tax collection authorities get engaged, there is normally a waiting period of several months to many years.

When a tax sale occurs, the property owner has a right of redemption. During this time, they may pay off the outstanding taxes in full and regain the property. If the property owner fails to pay the past taxes, as well as any accumulated interest, the property may be auctioned at auction or by other methods by a government organization.

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When a property is auctioned off in a tax sale, the minimum bid price is normally set at 80% of the compelled sale value of the property after removing any liens, as calculated by the Internal Revenue Service (IRS).

2,500

The estimated number of U.S. municipalities (cities, townships, and counties) in 23 states that allow tax lien sales.

Tax Lien Sale vs. Tax Deed Sale

When a property has delinquent property taxes, there are two sorts of tax sales that might occur. A tax lien sale is the first, and a tax deed sale is the second. The liens on the residence are auctioned off to the highest bidder in a tax lien sale, giving them the legal right to pursue lien collection, along with interest, from the property or owners. If the property owner is unable to pay the liens, the bidder who bought them may have the property repossessed.

A tax deed sale, on the other hand, sells the whole property, including unpaid taxes, in a public auction. Jurisdictions may provide a right of redemption after a tax deed sale, allowing a homeowner to reclaim their property within a redemption term provided they refund the purchaser for the sum paid during the sale.

Tax lien sales serve as both an incentive for the lien buyer to profit from the lien’s interest and a means of forcing the property owner to pay the overdue taxes. Tax lien sales are only authorized in 23 states (about 2,500 jurisdictions—cities, townships, and counties) in the United States, and each state has its own restriction on the maximum amount of interest that the new lien owner may accumulate.

  Tax Shelter

What Can Cause a Tax Lien on a Home?

Tax liens may form as a result of past-due tax bills, such as property taxes, school taxes, municipal water or sewer bills, and so on. In the case of unpaid income taxes, the IRS or state tax authorities may place a tax lien on a residence.

How Do I See If There Are Any Tax Liens on a Home?

Tax liens, in general, are public record and may be obtained at a municipality’s property records office (or website).This might be the municipal or county clerk’s or tax assessor’s office.

How Can I Buy a Home Subject to a Tax Sale?

Tax sales are often handled by auction by a municipality (e.g., the sheriff’s office) and are made public. Auction notices are often published in local newspapers or online. You might also ask directly with a municipality. It is important to note that the tax lien is tied to the property itself, not to the prior owner. This implies that the buyer of the property must likewise settle the tax lien before the title may be transferred.

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