The vast majority of real estate in the United States includes the land, meaning that the property owner holds ownership not only of the house but also of the land connected to it, including the foundation and the yard. The term 'property tax' is more accurately referred to as 'real estate tax.' Below, we provide an overview of the consequences of long-term delinquency or failure to pay real estate taxes in the United States.
What happens if you do not pay real estate tax in the United States?
First, for homeowners who are delinquent or fail to pay real estate taxes, the government will link the tax debt to the property title and deed. This not only significantly impacts the homeowner's credit record and lowers their credit score, but it also complicates transactions when the homeowner attempts to sell the property, as buyers are generally unwilling to purchase a home with outstanding real estate tax debts.
Second, if a homeowner persists in not paying real estate taxes or remains delinquent, the government may, in accordance with the law, take enforcement measures to auction the property, a process known as a 'Tax Sale Home.' Specifically, there are generally two methods:
Tax Lien Sale: The highest bidder purchases the homeowner's tax debt, effectively becoming the homeowner's creditor. The buyer is then responsible for pursuing the homeowner for the outstanding debt, interest, and legal fees. If the homeowner cannot satisfy the new creditor's demands, the new creditor may, according to the law, have the property publicly auctioned. This method of auction is legal in 29 states across the U.S., as well as in Washington, D.C., the U.S. Virgin Islands, and Puerto Rico.
Tax Deed Sale: The highest bidder purchases the real estate along with the outstanding real estate tax debt. Generally speaking, regardless of the method used, local governments often provide homeowners with several months or even years to pay off the debt before initiating the auction process to forcibly collect delinquent real estate taxes.
Additionally, in the vast majority of regions, such as California, the law stipulates that even if a homeowner's property is auctioned by the government, the homeowner has the right to buy it back from the new buyer within a specified period (usually one year), provided they pay in full all costs and interest incurred by the new buyer.
In summary, delinquency in real estate taxes is a serious matter that can ultimately lead to the property being auctioned, and it should be treated with gravity by homeowners. However, for homeowners who truly lack the financial capacity to pay (excluding those who have the means but choose not to), different local governments offer various programs to help homeowners through difficulties, including tax deferrals, installment plans, or even tax exemptions and reductions.