Mortgage and Tax Foreclosure Over Payment Reclaimed by Homeowner
Most homeowners know that if you find yourself in financial trouble and behind on your mortgage payments, you could face foreclosure from the lending company. But, did you know that you could also be foreclosed on if you don’t pay your property taxes?
Different states have different rules for foreclosure, which affects when the process can start, what happens while it proceeds and what can be done to end foreclosure. There are also rules and regulations that affect any over payments that can potentially be reclaimed by the homeowner.
Below, we dive deeper into these topics to shed more light on them.
Understanding Foreclosure
Generally speaking, foreclosure is a process that an entity takes to reclaim ownership of a property from a homeowner who is behind on their payments.
As mentioned, different states have their own specific rules for how these processes must proceed.
Foreclosure is a formal legal process that allows the entity to take possession of the property under certain conditions. It allows the entity to recover any outstanding debt the homeowner owes by taking title to the property and then selling the property to someone else.
Differences between Mortgage Foreclosure and Property Tax Foreclosure
Mortgage foreclosure is a process that’s initiated by the lender when a homeowner fails to make timely repayments. There are various steps that the mortgage company must follow to formally foreclose on the property and take control of it.
Property tax foreclosure, meanwhile, is a statutory foreclosure process initiated by a local government to collect any unpaid property taxes. The government is able to place a lien on the property when homeowners don’t pay their taxes, which gives the entity the right to collect those taxes plus any associated penalties and interest.
If, in time, the homeowner still doesn’t pay, the government has the ability to foreclose on the property and then sell it at an auction to cover those unpaid taxes.
Foreclosure Types and Processes
There are two different types of foreclosure that a lender can initiate, and each follows a slightly different process.
Judicial foreclosure involves the lender filing an official lawsuit in court to initiate the process. Some states mandate that judicial foreclosure be used.
Nonjudicial foreclosure, sometimes called foreclosure by advertisement, doesn’t involve the court system. There are 29 states that allow this type of foreclosure. This process can be quicker than judicial foreclosures, but there are still plenty of requirements the lender must meet.
Property Taxes
Along with the mortgage and interest, homeowners must pay property taxes — and most will pay them through their mortgage. This isn’t a requirement for everyone, though, so some people may opt to pay property taxes separately on a quarterly basis.
These taxes go to pay for things that local government entities provide, such as public schools, libraries, road repair and maintenance, trash and recycling collection and more.
What is Property Tax Foreclosure?
Property tax foreclosure is the process that local governments take to recover unpaid property taxes. If homeowners fail to pay their property taxes, the government that is owed the tax can file to take control of the property and sell it to make up for their lost money.
Tax Lien Sale vs. Tax Deed Sale
When homeowners don’t pay their property taxes, local governments place tax liens on the property. This gives them a legal claim to the property so that they can secure the payment of the taxes that are owed. In many states, this lien is given a “first-priority status,” which means it must be paid before all other debts, including the mortgage. In the State of Michigan, after the third year of unpaid property taxes, the County will initiate the tax foreclosure process.
Governments then hold public auctions, and the winning bidder agrees to pay the money to enforce the tax lien. This allows the government to recoup its money.
A tax deed sale, by contrast, is held to actually sell a foreclosed home. The winner of this auction will actually take control of the home itself, rather than just the certificate to collect the outstanding taxes.
How Does the Foreclosure Process Proceed?
All foreclosures must start with official processes of notification by the entity — either the local government or the mortgage lender. How they proceed depends on what type of foreclosure it is and who is filing it.
Legal and Financial Implications
There are many legal and financial implications of foreclosure, including the fact that your home can be taken from you. You can lose any equity in the property you have acquired. Long-term, your credit score can be affected by a foreclosure significantly as well.
How Do I See If There Are Any Tax Liens on a Home?
Anyone can check for tax liens on a home through either the local courthouse, county assessor or county recorder known as the register of deeds. Sometimes, you can search these records online for a fee, submit the request by mail or even conduct the search in person at one of those offices.
Each local jurisdiction might have different offices that handle this task.
Intervention and Resolution Strategies
Just because foreclosure has been filed doesn’t mean that you will instantly lose your property. There may be multiple options during the process to intervene and pay off the outstanding debt to exit the foreclosure process depending upon the state you reside in. There are even some options for redeeming the property after it has already been sold at sheriff’s sale.
Can a Mortgage or Property Tax Foreclosure Be Stopped in the Same Way?
Each state has different rules for stopping the foreclosure process. Generally speaking, there are more options to stop a mortgage foreclosure. This could include simply paying what’s outstanding, or even modifying the loan to new terms that are amenable to both the borrower and the lender.
It’s a little more straightforward with property tax foreclosure. This can be prevented by coming to an agreement with the local government entity to pay whatever outstanding balance is due on the property taxes.
In either case, the filing of a bankruptcy proceeding would stop the foreclosure process in its tracks through the bankruptcy’s automatic stay provision.
How Can I Buy a Home Subject to a Tax Sale?
Homes that are sold at a tax sale will be done so at public auctions. They will likely be advertised in local newspapers ahead of time, and then anyone can attend and bid on the property.
Working with a Professional to Resolve Property Tax Debt
There are many outlets for homeowners who are struggling to resolve outstanding property tax debt. One of the best ways is to hire a law firm such as Babi Legal that has years of experience in this area.
The expertise they can provide will be unmatched, and will give you the best chance to prevent your home from being foreclosed on and sold.
Financial Relief Programs and Options
There are many different financial relief programs and options for homeowners who are struggling to pay their mortgage and/or property taxes. Here are some of the most common ones.
Installment Agreement
Some government entities and mortgage companies will allow you to enter into an installment agreement to pay back your outstanding debt. This will allow you to set up a payment plan to pay the balance off over a set amount of time.
File for Bankruptcy
As a last result, you could file for bankruptcy to get some debt relief. This would work if you have other outstanding debts that you could get discharged, such as high credit card balances.
Lump Sum Payment / Redemption
If you have enough cash on hand, you can always exit the foreclosure process by making a lump sum payment of the amount of money you owe, this is known as a redemption. You even might be able to negotiate down the total amount you owe if you make one lump sum payment.
Choosing the Right Option for You
What is best for one person is not necessarily the best for someone else when it comes to dealing with foreclosure.
Assessing your financial situation and options
Working with an experienced law firm such as Babi Legal Group, you can assess your financial situation and the options you have to get out of foreclosure status, or to avoid it. By looking at your entire financial picture, you’ll be able to make a decision that’s smart for both now and over the long haul.
How to make informed decisions about foreclosure and debt settlement
There is no one right way to make a decision about foreclosure and debt settlement. That being said, it’s important to have an in-depth grasp on your overall financial situation, including your income, all the debts that you owe, your assets and what your outlook is.
Only then can you make a real informed decision about what would be best for you.
