Devon Camilleri - GUIDE TO RECOVERING FROM PROPERTY TAX DEBT

GUIDE TO RECOVERING FROM PROPERTY TAX DEBT

Devon Camilleri

Table Of Contents

What Is “Property Tax?”

What to Know About Property Liens

What Happens When You Don’t Pay Your Property Taxes

Understanding and Solving Your Property Tax Debt or Delinquent Property Taxes

Dealing with Property Tax Delinquency

Selling Your Home with a Lien

Tips for Selling Your Home Due to Delinquent Taxes

Tax Nightmares

Programs for Delinquent Property Tax Homeowners

10. Foreclosing Homes and Property Taxes

Foreword Let’s be honest—dealing with delinquent property taxes is not something most people plan for. Whether life threw you a curveball, bills piled up, or something slipped through the cracks, it happens more often than you think. And while the letters from the county may sound threatening, the situation isn’t hopeless. This book was created to be your straightforward, pressure-free guide to navigating what can feel like a financial minefield. You don’t need a law degree or a real estate license to understand your rights—or your options. You just need clear information, practical steps, and a bit of strategy. That’s what you’ll find in the pages ahead. Inside, we’ll break down how tax delinquency really works, how to avoid the most common mistakes, and how to make smart decisions—whether that means keeping your home or selling it on your terms. You’ll also discover little-known tips that could save you time, money, and stress. My goal with this guide is to take a complicated, often intimidating subject and make it digestible—and even empowering. You’ll walk away knowing what steps to take, what red flags to look out for, and how to move forward with confidence. Whatever brought you here, you’re taking the right first step just by opening this book. Let’s tackle it together—one page, one solution at a time. Happy reading—and here’s to gaining clarity, confidence, and control!

About Devon Devon is a native Californian who has followed in her father's footsteps to become a full-time real estate professional with over 30 years of experience in Southern California. In October 2020, she and her husband relocated to Texas, where she is now licensed in both California and Texas. Throughout her career, Devon has sold a diverse range of properties—including beach condos, professional equestrian facilities, vineyards, ranches, estate homes, and vacant land—gaining deep expertise in unique and specialized real estate markets. As an experienced real estate investor herself, Devon brings valuable insight into the complexities of property ownership, including navigating delinquent property taxes and tax liens. Her combined perspective as both agent and investor allows her to guide homeowners through tough financial situations with practical solutions and proven strategies. Devon’s top three objectives for customer service are to consider her clients’ overall goals, listen carefully to their wants and requirements, and ensure that she never exceeds their budget or misleads sellers about property values. She believes each client is as unique as the area and home they wish to buy or sell, deserving meticulous attention to every detail of their investment. Devon takes great pleasure in assisting first-time homebuyers as well as returning clients seeking new locations.

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In addition to her busy real estate career, Devon competes in Reined Working Cow Horse competitions and enjoys painting

in her studio. She and her husband raise a few steers and horses on their Quarter Circle Spade Ranch in Springtown, Texas, alongside their lively Jack Russell terrier. Over her 30-plus-year career, Devon has been repeatedly honored as a Top Sales Agent and Top Listing Agent from 1989 through 2025. As a Residential Investment Consultant and PSA Certified professional, she is dedicated to delivering prompt, knowledgeable service and expert guidance in today’s competitive real estate market. PSA, which most commonly stands for Pricing Strategy Advisor, is a certification offered by the National Association of Realtors (NAR) that equips agents with advanced skills to price homes strategically and maximize their value.

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Testimonials & Reviews for Devon Here’s a list of people whom I have helped buy or sell a home, and what they said about working with me: "Devon is truly a miracle worker. I was weeks away from losing my home due to unpaid property taxes and had no idea what to do. I spoke with a few agents before, but they either didn’t return my calls or treated me like I was a lost cause. Then I found Devon. She didn’t hesitate—she listened, explained everything in simple terms, and immediately came up with a strategy. Within a few weeks, not only did she help me stop the bleeding, but she also helped me sell the home and walk away with dignity—and a check. I’ve never felt so supported during a real estate transaction. Devon, I can’t thank you enough." - Melissa G., Fort Worth, TX "Working with Devon was hands down one of the best decisions I’ve ever made. When I received a notice of tax lien, I was overwhelmed and embarrassed. I thought I had completely ruined my financial future. But Devon never made me feel judged—not once. She treated me like a real person, with respect and compassion. She walked me through my options, helped me prioritize what needed to be done, and handled every step with professionalism and grace. The way she balanced empathy with action is rare. She didn't just help me sell my house—she helped me regain my confidence. Forever grateful!" - Tina H., Granbury, TX "Devon is an excellent choice in a realtor! She is attentive, polite and very detail oriented. She makes the whole buying process a breeze! Thank you, Devon!" - David Head, Azle, TX

"I was drowning in tax debt and shame, but Devon gave me a clear path and never once made me feel judged. She knows the tax system inside and out and truly has a gift for helping people navigate it. If you’re dealing with tax issues, just call her. Don’t even think twice. You’ll be glad you did." - Jared W., Moreno Valley, CA "Devon is always professional and a pleasure to work with. She stayed on top of the escrow process and was always one step ahead. Devon made our home buying experience stress free and uncomplicated." - Carolyn R., Carlsbad, CA "I was honestly so stressed trying to figure out what to do about my back property taxes. It felt like I was drowning. Devon helped me handled it. She knew exactly what to do, made everything feel less overwhelming, and helped me protect the equity I didn’t even realize I still had. I’m seriously so grateful. If you’re dealing with anything like this, talk to her. She’s the real deal." - Steven M., Murrieta, CA "I really wish I had found Devon earlier. I spent months spinning my wheels talking to people who didn’t really understand tax liens or how serious things were. She knew what to do and helped me get out of a tough spot. I came out better—money-wise and just feeling more at peace." - Monica S., Granbury, TX "She is dedicated to making sure her clients get the house of their dreams with amazing customer service. We have owned several properties and worked with many realtors, none of them have ever come close to Devon and her extraordinary work ethics and knowledge.

Thank you Devon, it's because of you we now live in our perfect

family home and couldn't be happier!" - The Taggarts, Fallbrook, CA

"I seriously don’t know how I would’ve gotten through this situation without Devon. I had no clue what a tax lien even meant until it was too late. I was drowning in confusion and stress. Devon stepped in and immediately made everything clear. She was patient, kind, and completely on top of every detail. Not only did she help me avoid foreclosure, but she made sure I wasn’t taken advantage of by buyers who tried to lowball me. She negotiated fiercely on my behalf, and I ended up selling for more than I thought was possible. She’s a total lifesaver and now someone I consider a friend." - Raymond C., Hemet, CA "Devon did a fabulous job for us with a very unique and difficult property to sell. It was particularly complex and difficult because it was a "short sale" and she had to not only negotiate with the Buyer, but also 2 banks. We could not have been happier with "Even though I ultimately didn’t sell my home, Devon went above and beyond to help me explore all my options. She not only helped me understand my property tax situation but also guided me on how to reinvest and make smarter financial moves instead. Her knowledge in both real estate and investing is incredible. What stood out the most was her honesty and patience—she never pushed, just guided. Her calm presence made a really stressful time feel much more manageable. Thank you!" - Beth S., Joshua, TX "Devon worked hard to get our property sold for us! When we were ready to give up hope she had the gritty determination to hold our hand firmly and advise us that her intuition was telling her efforts on our behalf." - The Celini's, Bonsall, CA

her a buyer was just around the corner. She was right and two months later we closed escrow. She is a horsewoman who understands horse property and facilities who will give her best to make your dreams come true." - Clay & Mary Lou Dupray, Valley Center, CA "Devon came into my life during a time when I felt like everything was falling apart. I was behind on taxes, dealing with family stress, and unsure what to do next. The moment I spoke with her, I felt like I could breathe again. She took the time to explain every option available—not just sell-sell-sell, like others do. She helped me realize that my situation wasn’t hopeless and that I still had control. She handled every part of the process with kindness, urgency, and expertise. I can honestly say Devon changed the course of my life. Her help was a blessing, and I’d recommend her to anyone going through a hard time with their property." - Naomi F., Burleson, TX "Devon is a 5 star agent all the way! She has a lot of experience and goes above and beyond to help her sellers and buyers get what they want. She is honest, knowledgeable and hardworking. Definitely recommend. " - Dana Whittaker, Carlsbad, CA "Devon Camilleri is incredible! When it was time to sell my horse property in Valley Center Ca., the first week of being listed, Devon went out of her way to promote this rural property ,and we had 4 offers in the first 10 days.. all over the asking price!, I had some experience selling properties, but Devon took it to a new level…she had such professionalism, integrity and grace…and made it possible for me to come back home to Texas…If you want expert advice with years of experience in residential, commercial, horse property and rural land opportunities, this is the woman you want to contact.. Devon is extremely gracious, and knowledgeable. "

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- Cece Chambless, Weatherford, TX

"I’ve worked with realtors before, but Devon was truly different. She actually listened—really listened. There was no sales pressure, just honest advice and real solutions. She helped me get my taxes sorted and sold my home quicker than I ever thought possible. Now I’m settled into a new place and finally breathing easier. It feels like I’ve got my life back—and that’s all thanks to her." - Carlos M., Riverside, CA "I was honestly skeptical at first—tax liens felt overwhelming, and I didn’t think anyone could really help. But Devon completely earned my trust. She broke things down in a way that finally made sense. What felt impossible suddenly felt manageable. I followed her advice step-by-step, and to my surprise, it worked better than I imagined. Her guidance saved me from losing my home. I can’t thank her enough." - Diane P., Weatherford, TX

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CHAPTER 1 What Is “Property Tax?”

A property tax is a tax levied by local or municipal governments on real estate. In legalese, a property tax is an ad valorem tax, which means it’s a tax based on the market value of a property or transaction. For example, a sales tax is an ad valorem tax, as it’s based on the value of the car you just bought, or the new couch, or a gallon of gasoline, and so on. A property tax is also an ad valorem tax, but differs from a sales tax collected once at the time of sale in that it is collected on the value of the property each year. That is the topic of this book— problems that homeowners run into regarding the advalorem tax known as your “real property tax.” There are four broad types of taxes that affect property: 1) tax on land; 2) tax on improvements to land (e.g., man-made structures, such as buildings); 3) tax on personal property (movable man- made objects, such as an annual personal property tax on the value of your automobile, as in Kentucky); 4) and intangible property tax. Real property, also called real estate or realty, is the combination of land and improvements and is the property tax with which we are concerned here. Besides property tax, other taxes related to property include “rent tax” on rental income and “land value tax” on just the land, not including improvements. A homeowner’s property tax is generally calculated based on the value of the property, including the land, dwelling, and other 1

structures. Jurisdictions vary in their property tax approaches.

Real property is often taxed based on its class, with property in different classes taxed at different rates. Property classes include residential, commercial, industrial, and vacant real property. What’s its purpose? Property taxes support local education, police/ fire protection, local governments, some free medical services, and most other local infrastructure. Tax assessors calculate the tax based on the current market value of the property. The amount of a homeowner’s property tax is determined by multiplying the relevant jurisdiction’s property tax rate by the current market value of the property, which is periodically recalculated by municipalities. Property tax assessments can vary. In some cases, the assessed value can be appealed by the property owner within the designated time frame. Property tax rates and the kinds of property taxes collected differ significantly from state to state and locality to locality. Rates vary across the states, between approximately 0% and 4% of the property value (land and structures). The assessment is made up of the improvement or building value and the land or site value. Home buyers should become familiar with the property tax structure, rates, and procedures applicable in the region in which they intend to purchase a home. Once the taxes are assessed, the decision of the municipality has a binding effect on the property owners. The payment schedule pertaining to the property taxes differ from region to region. It’s important that property taxes are paid on time and property owners know the implications of defaulting on the taxes, what penalties delinquent taxes will invite, and how to redeem the

property on which delinquent taxes are owed. All of this is covered in the rest of this book.

CHAPTER 2 What to Know About Property Liens operty Liens

It’s not exactly the official legal definition; however, in practical terms, a “property lien” is an unpaid debt that could squelch your home sale. Among the most common conditions that disrupt a real estate transaction is a “lien.” A property lien, officially defined, is a legal claim or hold on a property as security for the payment or repayment of a debt. This chapter explores the practical implications of such liens on property transactions. In general, a lien is a legal notice that is filed in the county court in which the property is located securing an unpaid debt with a “hold” against the property. If a creditor wants to get your close attention and/or to secure the payment of the debt, it may take legal action by placing a lien on your biggest asset—your home. In real estate, liens are more common than most buyers and sellers realize. A lien can result from unpaid taxes (federal income or county/municipal property), a court judgment, or unpaid bills (e.g., utility services). Liens attach to your property and give the lien holder a security interest in that property until the debt is discharged. There are limitations regarding what you can do with a lien when one is placed on your property—for example, take out a second mortgage, sell, or refinance your property until the lien is paid off and removed by a subsequent court filing.

VOLUNTARY LIENS Y LIENS

In signing your mortgage loan documents, you gave a “volunteer lien” to your mortgage provider. Although you own your home and hold the title as owner, the mortgagor has a security interest in the value of your home up to the amount you owe on your mortgage. So a voluntary lien, such as the one created when you sign a mortgage, grants a lender a security interest in your property until the debt is repaid. In other words, a voluntary lien is a claim that one person has over the property of another as security for the payment of a debt. An action taken by the debtor, like a mortgage loan to buy real estate, can create a voluntary lien. This type of lien is contractual or consensual. Other common examples of voluntary liens involve car loans in which the lien is noted on the title. • Non-consensual Liens. A non-consensual lien is involuntarily granted to a creditor (from the debtor’s perspective) to secure a debt owed. This type of lien comes into play after a debtor has failed to pay an unsecured obligation. Non-consensual liens are divided into statutory and judicial liens. • Attachment Lien. An attachment lien attaches to a person’s real or personal property to prevent disposal of it during a lawsuit. The plaintiff must show that the defendant likely will dispose of the property. If the court agrees, the court will issue a writ of attachment to the sheriff, directing the sheriff to seize the property. Attachments of real property should be recorded. Should the plaintiff win the suit, the court issues a writ of execution, directing the sheriff to sell the property to satisfy the judgment. • Judgment Liens. A judgment lien may issue when a plaintiff wins a judgment in court if an attachment lien

hasn’t already been issued. Like the attachment lien, it provides a method by which the defendant’s property may be seized and sold. • Child Support Liens. This type of lien is placed on your property if you owe a great deal in child support. The custodial parent may file a lien with the office where the property is recorded. For example, a lien on a house would be filed with the county recorder in the county where the house is located. The lien remains until the child is no longer entitled to support and all the arrears are paid, or until the custodial parent agrees to remove the lien. Although some states require the custodial parent obtain a judgment for the arrears before putting a lien on property, most states allow liens to be imposed on property when you miss court-ordered support payments. To check the lien requirements in your state, visit the Office of Child Support Enforcement website at www.acf.hhs.gov/programs/cse • Property Tax Liens. A property tax lien is placed by the government on unpaid taxes, income, or property tax. Property taxes are prioritized over any of the property’s mortgages or liens. Once the government assesses a tax, the amount due constitutes a lien on the owner’s property, whether real or personal. Some property is exempt from the tax lien by federal law. This includes trade books and tools, unemployment benefits, workers’ compensation, judgments for support of minor children, minimum amounts of wages and salary, personal effects, furniture, fuel, and provisions are all exempt. Local governments also can assess liens against real estate for failure to pay real estate taxes. After some period, the real estate may be

sold to satisfy the tax amounts owing. • Internal Revenue Service Liens. A federal tax lien is the US government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property, and financial assets. A federal tax lien exists after the IRS puts your balance due on the books (assesses your liability), sends you a bill that explains how much you owe (Notice and Demand for Payment), and you neglect or refuse to fully pay the debt in time. The IRS usually utilizes this lien if you’re unemployed, self-employed, or sporadically unemployed and the IRS would have trouble attaching your income. • Mechanic’s Liens. A common non-consensual lien on real estate is the “mechanic’s lien,” which can be obtained by one who furnishes labor, services, or materials to improve real estate. Mechanic’s liens are statutory, and the statute must be carefully followed. An automobile mechanic couldn’t obtain a mechanic’s lien on a customer’s house to secure payment of work he did on her car. To qualify for a mechanic’s lien, the claimant must file a sworn statement describing the work done, the contract made, and the materials furnished that permanently improved the real estate. • Family Law Real Property Lien. In a matrimonial action suit brought forth in the State of California, for example, a spouse may file a lien against his or her interest in commonly held real estate to secure payment of attorney fees accrued in the action. The lien affects only the filing spouse’s interest in the property. Please check your individual state and municipal laws or a local attorney for

guidance. • Condominium Association Liens. Condominium liens are strong tools granted by statute to condominium associations to ensure unit owners pay their assessments for common expenses in a timely manner. They vary by state. Consult with a local attorney for more information.

HOW A LIEN AFFECTS YOUR PROPERTY

A seller needs a clear title to undertake a property transaction, including sale and financing. A lien charged to your home makes the title unclear. While under contract for sale, the title company will perform a search for liens that may have been filed against the property. Where a lien is discovered, the transaction is put on hold. A lender will not finance a property until the lien is satisfied, or paid off, which is the seller’s responsibility. In most cases, the seller will act swiftly to resolve the debt. However, the seller could refuse to pay or contest the lien. If this happens, the sale will await a definitive outcome. The buyer has two options if a seller refuses to pay the lien. The refusal can be viewed as a breach of contract; this allows the buyer to cancel the sale without losing the earnest money deposit. Or, the buyer can accept financial responsibility for any liens to move the transaction along. In a cash transaction, the buyer and the seller are free to come to a resolution on their own terms.

HOW CREDITORS COLLECT ON LIENS N LIENS

Removing a lien typically involves paying the debt owed and obtaining a release from the lienholder. This process varies by lien type and jurisdiction. A lien holder doesn’t obtain any

ownership or hold the property title. However, a lien holder is granted certain rights regarding the property—namely, a share in the sales proceeds if the loan isn’t paid off and the property is sold. Lien holders generally can’t place themselves on to the title to obtain ownership. The main right of a lien holder is to have priorities from the proceeds of a sale if there is a default on payments or a foreclosure. In practice, only in rare circumstances do creditors demand the sale or foreclosure of property to pay off a lien. If a property is mortgaged, the creditor-lien holder, on enforcing foreclosure, must stay on schedule with mortgage repayment. Creditors favor waiting for the property to sell.

WHAT TO DO IF A LIEN IS FILED ON YOUR PROPERTY

In the event a seller first discovers a lien filed on owned property when preparing to sell the home, the first step is to determine if the lien genuinely belongs to him. Lien holds are searched by owner name. Sometimes multiple matches will return from a search. Relatives who share similar names or those with unusually common names (e.g., Smith or Jones) might find themselves asked about liens they didn’t incur. In this case, you should work with your real estate agent and title company to determine what proof is needed to clear the issue. Generally, all it takes is something as simple as a verification of your birth date or home address. If, however, you’re the seller and the lien is appropriately on your property, work to resolve the issue as soon as possible. Contact the lien holder and arrange how to pay it off. Often, the repayment will come out of the proceeds of the sale of the house.

For particularly complicated liens, you might seek legal counsel.

There are various actions you can take if a lien is placed on your property, which are determined by how much you owe and specific laws in your area. If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are several options to satisfy the tax lien. According to IRS.gov, if you have equity in your property, the tax lien is paid (in part or in whole, depending on the equity) out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution’s lien to allow for the refinancing or restructuring of a mortgage. The IRS currently is working to speed requests for discharge or mortgage restructuring to assist taxpayers during an economic downturn. To support taxpayers facing financial challenges, the IRS continues to refine its policies regarding federal tax liens. While the agency has updated certain thresholds for specific small- value properties in line with inflation, it has not implemented a broad increase in the overall dollar amount at which liens are filed. Instead, the IRS remains focused on case-by-case evaluation and relief mechanisms to ease the burden on compliant taxpayers while still ensuring collection of unpaid taxes. A notable example of taxpayer-focused policy is the IRS’s treatment of Direct Debit Installment Agreements (DDIAs). When taxpayers commit to making regular payments through direct debit and meet key eligibility criteria, including remaining balances under a certain amount and a record of timely payments, the IRS may agree to withdraw an active federal tax

lien. This change is designed to reward consistent payment behavior and reduce the long-term impact of liens on credit and financial mobility. Taxpayers who fully satisfy their tax debt also have the option to request a lien withdrawal. The IRS generally honors these requests provided the taxpayer has filed all necessary returns, remains current with estimated payments, and meets other filing compliance requirements. This approach supports those who resolve their tax obligations and wish to clear any record of the lien from public view. The IRS continues to utilize levies as a primary enforcement tool in more serious collection cases. A levy allows the government to seize property such as wages, bank funds, and vehicles to recover unpaid taxes. While it is a more aggressive step than a lien, the IRS follows a thorough review process before initiating a levy and typically provides advance notice. In limited cases, the IRS may delay collection activity if a taxpayer is deemed temporarily unable to pay due to hardship. This “Currently Not Collectible” status allows other creditors to be paid first, although tax debt continues to accrue interest and penalties. The IRS may also offer installment plans or accept settlement offers based on ability to pay, providing struggling taxpayers with alternative paths to resolution.

CHAPTER 3 What Happens When You Don’t Pay Your Property Taxes Nobody enjoys it when the annual property tax bill hits their mailbox. This is when we feel like grabbing up the phone, calling the tax collectors, and telling them, “Hey guys, just give me a break, please?” Let’s be realistic. As mentioned, the property taxes we pay support local education, police/fire protection, local governments, some free medical services, and most of other local infrastructure. These property taxes play a vital role in bettering our lives and providing for services in our neighborhoods.

SO, YOU HAVEN'T PAID...

Be prepared to receive a call or letter from the county collections office if you happen to have fallen behind in paying your property taxes. In this scenario, local tax collectors or country treasurers employ various collection techniques to get the money owed. Nonpayment could ultimately mean you end up losing your property. An established method by the government is already in place. The Treasurer’s Office disseminates notices via certified mail, demanding the delinquent account holder to settle his/her bills. In some instances, the county takes a step further and prints public notices in newspapers and other relevant communication media, listing the property tax accounts that have an outstanding balance, the delinquent owner of the account, as well as the amount owed. 13

THE PENALTIES

Interest is added on the amount until the outstanding property tax is paid. The interest incurred varies between local governments and depends on the state in which the property is located. Interest might be calculated monthly and added to the already existing balance at anywhere from 4-7%. If the account still is in arrears at year-end, the interest often increases to 10%. You’re expected to pay whatever property taxes you owe in a span of two years, or else you risk losing your property to foreclosure. The tax collector may escalate events and file a tax lien against the delinquent account holder with the county land records. The property tax lien represents the amount of property taxes owed the local government, including any additional penalties and the prevailing (current) interest rates. This lien gives the government an interest in your property, while at the same time preventing you from getting a mortgage or selling the property until you’ve resolved the tax issue. Once this process has been completed and the tax collector has successfully secured a property tax lien, more stringent debt collection methods, such as foreclosure, can be used.

FORECLOSURE

Nonpayment of county property taxes often leads to a tax lien. If the property tax lien isn’t paid, action is taken to secure the debt. As mentioned, this can include foreclosure on the property. Foreclosure on a tax lien occurs if the homeowner doesn’t respond by paying the tax due. Homeowners need to pay more than the original tax bill amount to avoid a tax foreclosure. State

and county tax collectors, along with the IRS, recover costs of securing the lien and late payment fees. In some cases, tax liens lead to tax certificate sales. These allow investors to assume the debt by bidding on the interest rate they will accept for the tax debt. Homeowners must then pay the owed amount plus interest to clear the lien. Investors can request a foreclosure sale if the homeowners do not pay. The investor will then receive payment from a new buyer. The policies governing foreclosure for property taxes vary by the area. For some local governments, the most common practice is that if the bill stands unsettled after the statutory period, the county issues a deed for the property, making it possible for the property to be sold at a public auction. Interested investors can then silently bid for the house with the successful bidder becoming the new owner. Initially, a notice will be sent to the debtor by the County Office that necessary arrangements have been made to auction off the property.

DISTRIBUTION OF FUNDS F FUNDS FROM FORECLOSURE

The proceeds from a sale in foreclosure are normally distributed as follows: • The county has priority and takes what’s owed in back taxes, interest, and any other penalties and charges incurred and imposed. • Administrative fees are also deducted. • What remains is available for claiming by the original owner of the property foreclosed.

POTENTIAL FORECLOSURE

AVOIDANCE ACTIONS

There are few—if any—ways to avoid foreclosure in the event of property tax nonpayment. Failure to pay county-assessed property taxes within the mandatory time will result in foreclosure, period. For example, Michigan has strict rules for collection of delinquent property taxes, putting the responsibility for collecting back taxes in the County Treasurer’s hands. Michigan law involves a 3-year procedure that could result in property loss. Understanding the steps involved will help prevent property loss from happening. The process is as follows: • Taxpayers pay current-year property taxes to their city, village, or township. • “Delinquent” taxes are turned over to the Treasurer’s Office and a 4% fee is added, plus 1% of interest per month. • In the next year, the interest rate jumps to 1.5% per month retroactively, or 18% per year. • In the third year of the process, rights to the property can be lost and property is offered at auction to recover the taxes, fees, and interest that are owed. You can find the following tips on how to avoid property tax issues on a Michigan County Treasurer’s webpage: • If your property is your home, or principal residence, ensure you have claimed a “Principal Residence Exemption” on your income tax. • If you didn’t file an income tax return, you may be eligible for a Homestead Property Tax Credit from the state.

• If you meet the eligibility requirements, you may claim a poverty exemption. • If you meet the eligibility requirements, you may also claim a hardship extension, giving you more time to pay your back taxes without losing your property.

Example: MICHIGAN DELINQUENT PROPERTY TAX TIMELINE AX TIMELINE

Current Year January 1 to December 31: r 31:During this time, your property taxes are made payable to your local city, village, or township government. Pay now to avoid nasty interest and penalties! 1st Year of Delinquency, March 1: On March 1, your taxes officially become “delinquent” and due to the County Treasurer’s Office. A 4% administration fee is added, along with 1% interest per month. 1st Year of Delinquency, October 1: A $15 fee is added to your delinquency. 1st Year of Delinquency, November 1: Your property is added to preliminary forfeiture list. 2nd Year of Delinquency, February 1: Mortgage lenders and banks may be notified of the delinquency. 2nd Year of Delinquency, March 1: Minimum of $195 in fees added to your delinquency. Your property is forfeited, not foreclosed, to the Treasurer. The interest rate increases from 1% to 1.5% or from 12% to 18% each year. 2nd Year of Delinquency, May 1: A foreclosure petition is filed in Circuit Court. June 1 to January 31: All owners and lien holders are identified and contacted through title research, and personal visits are made to taxpayers. 3rd Year of Delinquency, January: “Show cause” hearings are held, giving taxpayers a chance to appeal foreclosure. 3rd Year of Delinquency, February: Circuit Court hearing is

held, Foreclosure Order signed by the Judge. 3rd Year of Delinquency, March 31: h 31:Taxpayers lose all interest in their property. 3rd Year of Delinquency, August: Tax-foreclosed properties are offered at auction to recover back taxes, interest, and penalties.

AVOIDING FORECLOSURE FOR REASONS OTHER THAN TAX DELINQUENCIES

There are a few options to consider that can stave off foreclosure. These options can come in handy in this drastic circumstance, and you can think of them as potential “remedies” when you want to hold on to your home. • Try reinstatement. If foreclosure is looming due to missed mortgage payments, reinstatement refers to the case in which you bring your payments current by paying—in full—the amount due to your lender, including all the back payments, fees, and fines charged. As unlikely as it may sound, this scenario can happen; perhaps there’s a new job in the offing or loans from relatives or friends available. As a homeowner, it’s possible to reinstate a mortgage even up to the day just before a final foreclosure. This tactic requires no lender approval; however, it's important to communicate with your lender

early in the process, as they may have specific requirements or procedures for reinstatement.

• Rent the property. Renting the property is advisable to homeowners who have a property tax balance that is low enough to enable the rent payments to pay it up. If possible, find a less-expensive rental property, or consider asking compassionate relatives or friends (who have the means to do so) to allow you to live with them

temporarily to avoid losing the house. • Refinance. In case you have enough equity in your home and your credit is in good standing, it might be possible for you to refinance an affordable loan to avoid foreclosure and achieve lower payments. With current economic conditions and the housing values, it’s prudent enough to critically analyze whether this option can “bail you out.” • Work out a loan modification. If you're able to pay your property taxes but struggle with your mortgage payments, you might negotiate a loan modification with your lender. This agreement can adjust the terms of your mortgage to make payments more manageable over time. Options can include extending the loan term, reducing the interest rate, or even deferring some of the principal balance. • Sign up a forbearance agreement. A forbearance agreement is an understanding in which you can pay part of the regular payment or nothing at all, if need be, for a specified duration, depending on the condition of your financial accounts. When the forbearance period is up, you begin clearing the regular payments, plus an extra amount to settle up the past-due amount. • Resort to bankruptcy. If you live in a state where bankruptcy stalls the foreclosure on your property, you can take advantage of the situation to make good use of the six-month window given to you by the bankruptcy policy. For one, you get to live in your home with an avenue to pay the property tax outstanding balance under different terms.

(Note: Bankruptcy can—and most certainly will—tarnish your image, can damage your credit, and can be declared once. Therefore, this avenue should be very carefully considered, and only as a last resort.)

WHAT CAN YOU DO IF YOU'RE UNABLE TO KEEP YOUR HOME?

Having gone through the nightmare(s) outlined above, there’s a possibility that you just aren’t able to keep your home. When you hit this low bar, you can either short sale by aligning with an agent, or go with a Deed-in-Lieu of foreclosure (DIL). Short sale by aligning with an agent. Let’s take this scenario: What you owe your local government is more than the value of your property. Will it be worth it to declare bankruptcy? Will it in any way get rid of your financial troubles? The answer to these questions is simply, NO. This is when you enlist a real estate specialist to market the property, negotiate a short sale arrangement (agreement) with your tax collector, and advise and consult on the best possible way to balance your rather shaky financial situation. The short sale will play a key role in helping you evade foreclosure. It will also reduce the damage done to your credit score. You may also evade a deficiency judgment in case your tax collector forgives your outstanding debt in its entirety, as per the terms stipulated in the 2007 Mortgage Debt Relief Act. Thanks to the short sale, the foreclosure will be kept off your credit record. Another beneficial note for folks in this class is the fact that the Federal National Mortgage Association (FNMA) has shortened the compulsory waiting span to establish a credit history following a short sale to two years. This is quite a relief when compared against the previous five- to seven-year waiting

time after a foreclosure.

Deed-in-Lieu of Foreclosure. Many people are acquainted with this option as the “friendly foreclosure.” If after analyzing all your options, you still believe you really are pinned against the wall, you can simply avoid foreclosure by returning the deed plus the house to the tax collector (or bank) and simply walk away. It’s painful to think about, but it is often an option, pending a lender’s approval. However, if your outstanding balances extend beyond the property taxes that you owe, then this isn’t even an option for you. Complications may arise, such as when tax collectors prefer to see the property on the market for a minimum of three months before accepting a DIL. But by going this route, you save the tax collector money, tens of thousands of dollars, and for that, FNMA has also narrowed the compulsory waiting period to set up a credit history to four years.

WHY DO PEOPLE FAIL TO PAY THEIR PROPERTY TAXES?

Sometimes, delinquent property taxpayers have genuinely understandable reasons for failing to pay property taxes, but for others, it’s a complete disaster. Here are a few examples that paint a picture of why some people fall behind in property tax payments: • According to a statement given by a county treasurer, a significant percentage of the delinquent property holders declare bankruptcy and, over the waiting period of six months, accrue back taxes as proceedings go on. • Some property owners don’t possess a sufficient amount

on hand when the bills are due. However, most usually try to pay later.

A CALL TO ACTION

“Advice when most needed is least heeded”; that’s the norm. But that’s the norm only if you want to pay unnecessary interest, or worse, lose your property to foreclosure. The process of calculating the property taxes is complicated. To begin with, a taxable value approximately equal to its corresponding market value based on its previous sale as well as sales of nearby properties is assigned to your property. To get the assessed property value, the assigned value is multiplied by 35%. To come with the final bill, the assessed value is again multiplied by the property area’s tax rates, which are set in June every year. With your final bill duly calculated, you can clear it with your county government in a one big lump sum payment, or choose to pay in four installments. Further, each of the bills must be paid within a period of 10 days of the deadline; penalties for failure to comply are automatically assessed by the county.

CHAPTER 4 Understanding and Solving Your Property Tax Debt ax Debt or Delinquent Property Taxes

Considering the extra costs, fees, and penalties that are added to the delinquent property tax amount, the sooner the issue is cleared, the better. The longer it takes to resolves the debt, the more added fees and penalties accumulate. If, at some point, you realize that delinquent property taxes are accumulating and you might not be able to catch up, take a deep breath and try not to panic. You’re not alone in this situation; millions of people across the U.S. face this same harsh taxation reality every day. Howard Liggett, Executive Director of the National Tax Lien Association based in Pensacola, Florida, stated that $7 to $10 billion in property taxes go delinquent each year. It’s a tough situation in which to find yourself; however, there are steps to take to work out of the dilemma. Begin by approaching your tax collector for a discussion in relation to the property taxes owed by you to the government, making sure you understand exactly how much you owe. This isn’t as straightforward as simply adding up your missed payments as each missed deadline is usually associated with a 10% penalty assessed on the owed sum, to which another monthly variable percentage is added after the first year of delinquency.

Your tax collector can be a great source of useful information. A productive meeting will help you better understand your situation and the risks that you face. The tax collector may also help you devise a plan to help resolve the issue. Being honest about your problems and financial issues with your tax collector is the best option. This way, he or she will better understand the situation and can help you determine the necessary steps to alleviate the debt. Those steps will be determined by several factors. First, compare the interest on a loan with the interest rate charged by the government. Each state sets its own deadlines and payment delinquency structure. In some situations, refinancing your mortgage, applying for a rescue loan to pay the taxes, or putting your house up for sale with the assistance of a professional real estate agent may be a better financial idea. In other cases, if your damaged credit score will only permit you to arrange high-interest rate loans, paying the delinquency penalties and making a payment plan might be financially wiser. Paying property taxes through an escrow account attached to your mortgage is a convenient way to ensure currency with property tax billings. This only applies if you have a mortgage on your home. In these cases, you pay these taxes as well as your mortgage on a regular monthly basis. Many mortgage companies collect this monthly tax and put it aside in an escrow account. At the end of the year, they pay your property tax from this account. Another good technique is to make a show of good faith by making partial payments. Even a small, regular payment is better than nothing. By making regular payments, you’re indicating your intent to pay, despite current financial troubles that prevent you from paying the full amount. Try to pay $20, for example,

out of every paycheck received. The tax collector will see that you’re trying to pay your pending bills and will be less likely to act against you.

TAX LIEN SALES

Tax collectors in 29 states, Washington, DC, Puerto Rico, and the U.S. Virgin Islands use tax lien sales to force owners to pay unpaid property taxes. The process varies by state, but generally, when property owners default on their property taxes, tax collectors wait the period required by state law and then put those unpaid property taxes up for auction. The period varies from just a few months to several years. In Florida, if owners don’t pay taxes due in April, tax collectors will sell a lien June 1. In Indiana, a property will go to a tax sale in 15 months. In most states, the person willing to pay the most cash for the tax lien wins the auction. Some states, however, use a bid-down process in which investors’ bids indicate how much interest they will accept on their investment, with the lowest bidder winning. Whatever method is used, the tax collector takes the payment for the overdue taxes from the winning bid. In exchange, the purchaser gets a lien on the property. The winning bidder receives a return on their investment either through interest on the bid amount, or ownership of the property. If owners pay overdue taxes within the timeframe required by state law, they can redeem their property and the lien holder gets the investment capital back, plus the amount of interest allowed in the state. Tax lien investments usually have a statutory interest rate, typically between 10% and 12%. They can go much higher, too. For example, Connecticut offers 18% and Nebraska offers 14%. For example, let’s say an Indiana homeowner owes $500 in unpaid property taxes and a $5,000 bid is the winning bid at

the auction. If the homeowner redeems the property within a year, as required under Indiana law, he will owe the tax collector the initial $500, plus a 10% penalty, totaling $550, as well as be required to pay 10% interest on the amount of the bid over the initial tax bill—or $450. The winning bidder will get the capital investment of $5,000 back, plus that 10% interest payment of $450. Approximately 75% of owners redeem their property within a year. However, if owners fail to redeem their property, the winning bidder may file a lawsuit seeking title to the property. Owners have until the selling date to pay all pending delinquent taxes, penalty fees, and costs to prevent the property being sold. In certain states, homes sold at property tax auctions may be redeemed by their owners for some time after those auctions. California doesn’t offer such a redemption period. In other states, the buyer doesn’t own the property itself, but receives a certificate of purchase. The purchaser will gain the title to the property once the redemption period expires. If your lien appears as sold, consider it a wake-up call. An active foreclosure situation is a real nightmare for most people. Once the property taxes are delinquent for a certain amount of time (usually three years, but the delinquency period varies), the taxing authority may start the tax sale. A list is registered in the county records that states all the details about the taxpayer’s identity, the property, and the value of the tax due. This list is most often published and functions as a public record. The taxpayer will always receive a notice of the tax sale, but in most counties finalizing foreclosure requires no judicial action. Where there is a mortgage on the home, a property won’t usually go to tax sale, because the lender will often advance amounts

for paying property taxes to ensure their lien isn’t wiped out or diminished in a tax sale. Most mortgage contracts contain a clause that gives permission to the lender to later include advanced amounts to the total debt that the debtor owes the lender.

HOW TO AVOID A TAX SALE

With good counsel, you might be able to find ways to avoid a tax sale of your property that don’t involve full payment of the entire delinquent property tax amount. For one, it’s possible for homeowners to object to the tax assessment and seek a reduction in the amount. A lawyer can advise and educate the homeowner on state and local law offering them the procedural possibility of challenging the value of a tax assessment in attempt to obtain a reduction of the tax liability. There are commonly two grounds used to contest an assessment. The taxpayer can maintain that the assessment exceeds the property’s taxable value. In addition, the taxpayer can argue that the property has been assessed in disproportion—i.e., that the assessment value is established higher than assessments of other comparable properties in the area. If the assessment is reduced, paying off the property tax debt might not be such a financial challenge anymore.

COMPROMISE, ABATEMENT, OR DEFERRAL

Another way to deal with your property tax delinquency situation to prevent a tax sale of your house is to find a middle ground with the tax collector. You can try reaching a compromise, requesting an abatement, or receiving a deferral.

Certain homeowners can reduce the amount of property tax they

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