Avoiding a Tax Foreclosure

There are numerous issues that may put a homeowner in the situation of facing tax foreclosure or liens on their home. Texas has some of the highest property taxes in the United States - to help counteract their lack of a state income tax - and the Houston area has been seeing a significant rise in property values.

When property values rise, so does the amount of property tax the homeowner owes on it. If you've found yourself in a situation where significant raises in your property value have placed your home that was once within your means outside them, know that you're not alone.

Whether you're slightly behind in your taxes, already have a tax lien on your property, or are facing tax foreclosure, you'll find a wealth of helpful information below.

How can we help stop a tax foreclosure on your Katy or Houston, Texas area home?

We buy homes in with tax problems - in any price range and in any condition. This means we can make you a cash offer, close within ten days - sometimes sooner - and help you avoid having your home foreclosed on as a result of unpaid taxes and tax liens, and having a foreclosure on your credit record.

Tax Problem FAQs

You’ll find a list of the frequently asked questions we receive from homeowners in general here. You'll find a list of tax specific frequently asked questions below.

Disclaimer – The information on this page is intended for general informational purposes only and not to provide legal advice.

What is a real estate tax lien?

If you fail to pay property taxes on the home or land you own, the local tax collector can place a lien on your real estate. This means that the government then has a legal right to the delinquent taxpayer’s property until the tax debt, plus interest and penalties, are paid in full.

What is property tax foreclosure or tax lien foreclosure?

If property taxes aren’t paid, the taxing authority can foreclose on the taxpayer’s home, by filing a lawsuit in court. The court then enters a judgment for the home to be sold to pay off the homeowner's tax debt. If a sufficient bid on the home is not received from a buyer, the county takes over ownership of the home until it's sold at a later date. The taxpayer would have the opportunity to save their home both before and after the tax sale, in what is called “redeeming” the home. If the owner doesn’t “redeem,” they’ll lose their home permanently.

What is the tax foreclosure process and how does it work?

Under Texas law, one must be given written notice of the tax sale before it takes place. Typically, a notification is sent by personal delivery or via mail, which includes the date, time, and location of the sale. The notice is also published in the local newspaper. If there is no local newspaper, it is posted publicly.

If the homeowner doesn’t cure the tax delinquency by paying off the judgment amount before the sale, the home will be sold at a public auction to the highest bidder. The minimum bid must be the market value of the home; or the total amount of taxes owed, including penalties and interest.

The highest bidder at the auction will receive a sheriff's deed upon sale. A general warranty deed for the property will be issued to the buyer once the former owner's right to redemption period has expired.

How can you stop a property tax foreclosure?

If a Texas homeowner is struggling to pay their property taxes, there are options available which can lower their property tax amount, or buy them extra time to get caught up on the what is owed, to avoid a property tax foreclosure on their home. These options may include:

• Paying the debt: This is the obviously the best solution to stop a property tax foreclosure on one’s home, as the homeowner can pay the judgment amount, including taxes owed plus penalties and interest, at any time before the home auction sale takes place.
• Get your property taxes lowered: As property taxes are based on the assessed value of your home, you can appeal the assessed value by showing that your property’s estimated market value is inaccurate or unfair. This can be done by getting comparable home sales figures from a realtor or the appraisal district. You can compare your taxes with other homes in your neighborhood with the same floorplan. If the values for those homes are lower, show that as part of your protest, along with photos and copies of your neighbor’s property tax records, which are available for free on your appraisal district’s website. Protesting your property taxes must be done before any delinquency on the tax account. Once the taxes become delinquent, the homeowner will be ineligible to protest and adjust their taxes. You'll find more information about protesting your property taxes in Texas here.
• Deferral program: In Texas, homeowners who are aged 65 or older, or disabled, are able to defer paying delinquent property taxes on their homestead property, meaning that they own and reside in the home. This deferral program only postpones the payments but doesn’t cancel the tax obligation, and 8% interest is added annually to the property tax debt. However, it does stop late fee penalties on the amount owed. If you are not living in the home, you’ll need to pay the accumulated taxes within 180 days to prevent foreclosure. You can find more information about who may be eligible for tax deferrals on the HCAD website here.
• Payment plan: Texas taxing authorities are required by law to offer taxpayers who are behind on payments, a payment plan. Property tax payment plans differ by county, but generally, down payments can be as high as 25% and interest rates as high as 12%, which results in large monthly payments. A repayment plan can only be allowed once every 2 years, and if you default on a payment, you’ll be subject to retroactive interest and penalties. You can find more information about Texas property tax installment payment plans here.
• Property tax loan: In Texas, you may work with a private property tax lender who pays your property tax debt and protects your property. The loan, plus interest, is paid back through monthly payments to the lender.
• Consult an attorney: If you are unable to pay your property taxes and are facing the possibility of a property tax foreclosure, it may be best to contact a lawyer to discuss what are your best options.

What is a deed in lieu of foreclosure? How does it apply to tax foreclosures?

A deed in lieu of foreclosure is a transaction between the homeowner and lender (the bank), where the homeowner voluntarily transfers the property deed to the lender in exchange for relief from their mortgage obligation. The bank then takes the property and sells it to pay off your mortgage loan. A deed in lieu of foreclosure is not an option for those facing a tax foreclosure and is limited to helping avoid mortgage foreclosures only.

How does a tax foreclosure affect your tax return, if at all?

When it comes to filing your tax return, a tax foreclosure, or any type of foreclosure for that matter, is considered by the IRS as a sale of real property. A regular home sale would through an escrow process, and the seller receives statements showing how much the home was sold for. But with a tax foreclosure, there is no escrow. The taxing unit takes possession of the house and sells it to the highest bidder to pay off the homeowner’s property tax debt.

Depending on the price the home was sold for, minus the amount of property tax judgment and all other fees and expenses, either results in a capital gain (referred to as “excess proceeds” in a tax foreclosure) or a loss for the previous homeowner. The owner would then report it as such their tax return and pay income tax accordingly on any gains.

Is the process or are the consequences different for a homestead tax foreclosure vs. an investment property tax foreclosure?

A homestead is referred to as the owner’s home and land in which they currently reside at. An investment property is one which the owner rents out to other tenants. The property tax foreclosure process and the consequences of both types of ownership are the same.

However, homestead owners in Texas may be entitled to a Residence Homestead Tax Deferral. With this deferral, they may postpone paying their delinquent property taxes by filing a tax deferral affidavit with their county appraisal district. This tax relief allows homeowners to pay property taxes on 105 percent of the preceding year's appraised value of their homestead, plus the taxes on any new improvements. The remaining taxes are postponed, but not canceled, with interest accruing at 8% per year.

Both types of homeowners have the right to redeem their property before the auction sale by paying the full amount of the judgment before the sale takes place. To redeem the property after the sale takes place, owners of residential homestead and agricultural properties have a two-year redemption period, while other types of properties, including investment properties, have a redemption period of 180 days. You can find the full Texas tax sales and redemption code here.

What are redemption rights and how long do they last for?

Texas homeowners have the right to “redeem” their home after a tax foreclosure takes place. To redeem their property before their foreclosed home got to auction, they can pay off the property tax debt in full (taxes, interest, penalties, and other costs), and this will release the tax lien on their home and stop the foreclosure.

The state of Texas allows homeowners the right to redeem after the sale and buy back their foreclosed home. Homestead and agriculture property owners have a two-year redemption period, while other types of properties have a 180-day (6 months) redemption period. You can find the full Texas tax sales and redemption code here.

What are the costs of redeeming your home after tax foreclosure?

To redeem your home after a tax foreclosure but before it is sold at the auction, you would need to pay the full amount of the judgment, which includes taxes owed, interest, penalties, and fees.

To redeem your home after it has been sold at a tax sale, you would need to pay the following:

• Amount the purchaser bid to buy the property
• Amount of the deed recording fee
• Amount the purchaser paid for taxes, penalties, interest, and costs on the property
• A redemption premium of 25% (1st year) or 50% (2nd year) of the bid, interest, and expenses of maintaining the property from the auction bidder will be owed. For example: if a storm damages the roof post auction and the integrity of the structure is at risk; the auction bidder can be reimbursed for the expense of the roof in addition to the 25% or 50%. Redemptions are brought in front of the court to determine a payoff for the reinstatement of ownership for the home and can be costly. Also, any liens are reinstated as well - such as a mortgage, HOA, contractor liens, etc. Any prior debts don’t just disappear but remain attached to the property after redemption of a property tax foreclosure.

The above costs also apply if the country got ownership of your home at the sale and then sold it to a new owner at a later date. If your property has not been resold and the country retains ownership, you’ll have to pay the lesser of the judgment amount or the fair market value of the property (as specified in the judgment), plus the deed filing fee and costs. You can find the full Texas tax sales and redemption code here.

What are some resources that can provide tax foreclosure help?

If you are struggling to pay your property taxes and are at risk of losing your home in a tax foreclosure, below are resources which can offer advice and counseling.

• U.S. Department of Housing and Urban Development (HUD): HUD offers foreclosure prevention counseling services free of charge through HUD's Housing Counseling Program. A list of counseling agencies in Texas can be found here, or you can call toll-free at (800) 569-4287.
• Home Ownership Preservation Foundation (HFP): HFP is an independent, national, nonprofit organization dedicated to guiding consumers onto the path of sustainable homeownership and improving their overall financial health. Visit their website or call 1-888-995-HOPE (4673).

Can you sell a home that owes back taxes or with a tax lien?

Yes, you may sell your home if you owe back property taxes or if there is a currently a tax lien on your property. However, the amount you owe will be deducted from your sale proceeds at the closing of the sale, just as your current mortgage would be deducted. These amounts are not added on top of the selling price, they are part of the selling price. Therefore, your equity in your home must be sufficient to cover the tax lien amount, as it needs to be paid before the new buyer can take over the title of the property.

How does a tax lien foreclosure affect your credit?

Your credit score is a predictor of your ability to repay debt. Therefore, if you have unpaid property taxes and a government puts a tax lien your property, it will undoubtedly lower your credit score, even if you pay it off eventually. If your home goes into tax foreclosure, you can expect your credit score to drop on average 85-160 points, depending on your credit score before the foreclosure. The higher your previous credit score, the more you can expect it to drop after a foreclosure.

A foreclosure will remain on your credit report for an average of seven years. Your credit score will gradually improve over time, but not fully recover until the foreclosure is dropped from your record.

What happens to my mortgage in a tax lien foreclosure?

Tax liens are superior liens in Texas. In the event of a tax lien foreclosure, the mortgage company will be notified 10 days before the sale at auction. If the mortgage company does not perform on your behalf for the taxes, they will lose the lien position they hold at auction. Not to say they would not receive any payment; any excess bid amount would go toward the amount of the mortgage remaining in the first lien position.

If the mortgage amount is not satisfied the mortgage company could have cause to recoup the loss through a deficiency judgment, and the homeowner would ultimately be responsible for that debt as well.

Are there any differences between a tax foreclosure and a mortgage foreclosure?

Homeowners who default on mortgage payments can have their properties foreclosed and sold at a bank auction. Homeowners who are delinquent on their property taxes can have their home foreclosed by a government entity. Both types of foreclosures are similar in that they both involve the repossession of property, but the auctions or sales of these foreclosure properties are different.

Mortgage foreclosure properties are sold at a bank auction and are designed to maximize the property’s auction sale price, so the foreclosing bank can recoup at least what it is owed. Tax foreclosure auctions are conducted at a local courthouse and are designed to net the foreclosing government the amount of the tax judgment they are owed. While mortgage foreclosures and sales return money to the lender, tax foreclosures and auctions return money owned only to the foreclosing government. You can find more information about the mortgage foreclosure process here.

Another difference between a tax foreclosure and mortgage foreclosure is the right of redemption on tax foreclosures only. In Texas, you are entitled to redeem your home both before and after a tax foreclosure sale takes place. To redeem the home before a tax foreclosure sale, you must pay the judgment amount, including taxes, interest, penalties, and any additional costs incurred. The redemption period after the auction tax sale is two years for residential homestead and agricultural properties, and six months for all other properties. You can find the full Texas tax sales and redemption code here.

How far behind can you get on your property taxes before they can foreclose?

Taxing units usually mail their tax bills in October and are due upon receipt. If not paid by February 1, it becomes delinquent. As the new year gets nears, contact your local tax appraiser if you have not received a tax bill. Find out how much tax you owe and make sure your correct name and address are on record. Failure to receive a tax bill does not affect the validity of the tax, penalty or interest due, the delinquency date, the existence of a tax lien, or any action, including tax foreclosure, that the taxing unit may initiate to collect the taxes owed.

What does tax forfeiture mean?

Tax forfeiture is the process by which the state takes ownership of a property if property taxes are not paid.

Does Texas differ significantly from other states when it comes to tax foreclosure laws?

In all 50 states, homeowners are required to pay their property taxes and risk losing their home in a tax foreclosure if their payments become delinquent. What differs by state is the tax foreclosure process and timeline.

For instance, in Florida, it the property tax lien that is sold first in an online auction. The person who bought the lien on the home receives a certificate and the right to collect the tax debt from the homeowner in default, plus interest, and in turn winning bidder pays the delinquent taxes, interest, and costs, while charging the lowest interest rate on the debt. Two years later after April 1 of that year, is when the tax deed sale takes place, and if there is no buyer, the person who bought the tax lien get the home.

This is just one example but shows that in Texas, the tax foreclosure process does tend to move faster than other states.

Are property taxes the only kind of taxes I can be foreclosed on for?

While it doesn’t happen often, it is possible that If you are a homeowner and fail to pay your federal income taxes, the IRS can get a tax lien on your home. Once this happens, the IRS could potentially foreclose on your home to collect the debt. However, this rarely happens because the IRS will eventually get paid when you sell or refinance the home, or if your mortgage lender forecloses because you default on home loan payments.

How can we help prevent a tax foreclosure on your Houston, Texas area home?

We buy homes in pre-foreclosure – in any price range and any condition - even homes with tax liens. This means we can make you a cash offer, close within ten days – sometimes sooner – and help you avoid having your home foreclosed on for unpaid taxes and having a foreclosure on your credit record. You can request a free, no-obligation, cash offer for your home here.