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2021 Delinquent Tax Property Auctions: how to find, list, and purchase

Interest in tax liens from delinquency in paying property taxes is on the rise. Our team took a the benefits and possible consequences of this practice.

2021 Delinquent Tax Property Auctions: how to find, list, and purchase
BRENDAN SMIALOWSKI AFP

In some states, when a homeowner falls behind on their property taxes or utility bills, the government can bundle the debt and sell it to an investor. The state uses the money from the sale to pay the overdue taxes, and then the homeowner pays the investor. If they cannot pay back the investor, their house can be foreclosed on, seized, or auctioned. Each state regulates the market on these assets known as tax liens in a different way.

 The number of people who become delinquent on their mortgage and subsequently on their property taxes tends to increase during times of economic distress. The federal moratoriums on evictions ended on 31 March 2021, meaning that many who are behind on payments could see a tax lien imposed on their property. However, some economists and researchers have pointed to the Great Recession during which “overall property tax collections saw minimal declines during the Great Recession despite widespread mortgage defaults and foreclosures.” This could be because the wealthiest members of a community, who own the most expensive houses and pay the most in property taxes, are not impacted by the economic downturn; they keep paying, which keeps the total level afloat.

How to find, list, and purchase a tax lien?

The current housing market is saturated with buyers, leaving some investors to look to non-traditional options to purchase houses. This has led to a peak in interest in tax lien propertys which according to Quicken Loans, can be very financially rewarding. The financial advising organization outlined that because “Depending on the interest rate and the terms allowed by the local government, you could see a return quickly. If the property owner cannot repay you within the payment terms, you could foreclose the property.

Every state has a different system to find properties with a tax lien for sale. Some use online portals while some host lives auctions. In Alabama, for example, the state government hosts a website where all the properties can be searched. Those interested in purchasing the debt can send an e-mail with their offer, and the state will respond. To find out how to buy a tax lien in your state, it is best to research the specifics in your state.

The ethics of tax liens

Since the Great Recession, man reporters have looked into this practice and found some horrifying truths. In some cases, the researchers found that people lost their houses because they could not pay as little as $40. This example comes from Washington DC, where Daisy Dolsey, a seventy-seven-year-old woman with dementia, had her house foreclosed on because she was unable to pay $44.

Investigators also found that once the debt has been bought, many investors will bring the homeowners to court. These judicial actions, which force homeowners to pay legal fees, can increase the total amount due some fifteen-fold. Some advocacy organizations believe that tax liens are away for governments to shift the onerous of evicting people onto the private sector.

A report from the National Consumer Law Center (NCLC) showed that many investors are interested in buying tax liens because of the interest they can charge. The report highlighted the ability to make massive profits saying “Although banks currently provide interest on savings accounts at less than 1 percent, many states permit tax sale purchasers to recover interest at rates of 18 percent or more, even as high as 20–50 percent.”

While none of this is illegal, advocates believe that debt related to housing should not be bought and sold like this. The NCLC argued that forcing a family from their home may in the end may them a more significant, tax burden compared to the amount of property taxes they fell behind on.