Delinquent taxes are property taxes that you have not paid by the due date. Not surprisingly, you can have some pretty serious problems when you let your taxes go unpaid! For example, in Washington, if you don’t pay your property tax bill on time, the taxes become delinquent and begin to accrue interest and penalties on top. This can obviously be a pain if you are trying to sell a house. Not many buyers want to take on a new house with back taxes left unpaid! So, if you’re the property owner, you might be stuck between a rock and a hard place if you’re trying to sell your house but don’t have the means to pay the taxes that you owe.
One other important term to know if you haven’t paid your property taxes is “tax lien.” A tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt—which means it’s another thing that might make selling your house more difficult than it should be. When buying your property, the home buyer does not want to have to worry about the tax lien you have on your property; in other words, it needs to be cleaned up before you try to sell or donate your property.
To ensure you are able to sell your property, be sure you take care of your tax troubles before you put your house up for sale. Yes, of course, take the time to talk to local county tax assessors to hash out any payment plans if you don’t think you will be able to afford your taxes, and you can also seek tax help from professionals.
But one important thing to know is: there are sure-fire ways to handle tax foreclosure. You still have options available to you, and not every story ends so poorly! Don’t start planning to live on the streets; sell your property now. It’s very empowering to sell your house before you are foreclosed upon, and, obviously, it will also help preserve and (potentially) repair your credit—so you can get another loan and buy again in the future.
Understanding Delinquent Taxes in Washington State
Delinquent taxes are what we call property taxes that have completely blown their due date. These taxes are the result of property owners refusing or being unable to pay their bill. This increases the amount that they owe due to rising interest and penalties. Reasons for this range from personal disputes over their assessment to ignorance about paying the tax bill in the first place.
Delinquent taxes can lead to damaging consequences. There are two major things to watch out for—foreclosure on their home and a lien on the property.
On one hand, homeowners can lose their property due to delinquent taxes. The property goes up for sale so that local government can make back the money they were essentially owed. This also seriously damages their credit. On the other hand, a property lien prevents the home from being sold until this debt is settled. It traps the homeowner and stunts any financial decisions for their next steps. By being proactive and addressing these issues, you may be able to avoid the consequences of unpaid property taxes.
The Impact of Tax Liens on Property Sales
When you stop paying property taxes, the taxing entity will attach a lien to that property, known as a tax lien. It lets the government put a security interest on the amount you owe in property taxes — so if you ignore the bill, they can do something about it. After a tax lien is recorded, it is also filed as a public record, which means anyone can look up a property and see if that property has a tax lien recorded on it.
If you’ve ever tried to sell a house with a tax lien recorded on it, you know how difficult it can be, if not impossible. Many homeowners find that a potential home buyer is not eager to purchase a home with a tax lien on it because it raises a lot of red flags. It suggests that the homeowner isn’t great with their finances and could land the potential home buyer in legal trouble. There is also the common fear that the potential home buyer will be on the hook for the unpaid property taxes, risking the possibility of the taxing entity initiating foreclosure. Plus, buyers will likely have a tough time securing a mortgage on a house with a lien on it for property tax. Strangely enough, pays to know what a tax lien is and how to clear it from your public records. In this blog, we’ll introduce the subject of what a tax lien is — and we’ll also introduce a basic tax lien removal guide. If you feel you need more detailed information, give Tom a call at Watson Law, P.C. or send him an email with your questions at info@WatsonLaw.Omaha.com. You’ll be relieved when your stress is over.
Options for Selling Property Facing Foreclosure Due to Unpaid Taxes
Selling the property “as-is” (even with unpaid taxes) is an option. Yep, you can sell the house with unpaid taxes. Think you can’t sell because you have unpaid taxes? Not so fast. All that it does is reduce the total dollar amount you receive from the sale of the home. So, if you were hoping that $225,000 was going to end up in your pocket, think again. You may be looking at a little less, depending on how much you owe.
A short sale is another solution many consider. A short sale has nothing to do with time but has everything to do with a lender agreeing to an offer that is less than the amount you owe on the mortgage. If you’re wondering why someone would willingly sell at a loss, the reason is typically because the bank is about to foreclose. They know that it’s going to happen, and they would rather recoup some money (via a short sale) than none at all. Is it ideal? Not for most, but it is a strategy that works. Does it have consequences? Yes, and here are examples of what can and will happen after a short sale.
Who sells the property? You can sell by yourself (although I don’t advocate for that in this scenario). This situation is one where I highly encourage homeowners to work with either a real estate agent or a tax professional that has negotiated short sales before/or is familiar with selling properties with delinquent taxes.
How Long Can You Not Pay Property Taxes?
Each year in Washington, property taxes are due April 30. That is, unlike the federal income tax deadline of April 15, you actually have an extra 15 days or so to pay your property taxes (you have a nice little grace period there that extends up until May 1).
But what if you do not pay your property taxes by then? At that point, you are looking at some form of financial penalty.
That penalty is a 1% charge on the unpaid taxes due (there are additional late fees that continue to get tacked onto your bill). Basically, for each respective month that you don’t pay your property taxes, you undertake an additional 1% interest fee!
Furthermore, though, if you do not pay that tax for up to three years, you then get forwarded to your respective county’s treasurer (where you reside), and they then set a tax foreclosure date; yes, you could actually have tax foreclosure on your property!
Basically, a certain time period goes by where the government then reaches out to you to tell you that you have to pay some form of tax. If you don’t pay that respective tax, your property will be sold via a tax foreclosure auction!
Understand that there are other factors at play here. Many people get too caught up in just the idea of having “interest” added to the total amount that they have to then pay off. But you can negatively impact your credit – that could hurt you elsewhere and put you in a bad financial position, perhaps crippling you financially for the next ten years or more.
For homeowners, understanding the consequences of unpaid taxes is critical. Suppose you haven’t paid taxes, the local government can put a lien on your land. When you try to sell your home, a title company will run a title search and find the lien. Before you can use this land to sell to a new owner, the taxes will have to have been paid. Not paying your taxes could result in being evicted from your home, outright losing your home, and potential legal trouble.
If you’re having difficulty paying your taxes, consider negotiating a payment plan. This way, you can keep your home and pay off the taxes at the end of the year.
If you don’t want to deal with this, you could sell your home as-is. Show the buyer your FA report. Once you disclose the lien, you can still sell the home. Just know that a tax lien will decrease your home’s value and suck profits from the sale. On top of that, taxes are not a walk in the park. A home buyer may not even want a home that has a tax lien attached to it.
Private sellers should consult a real estate agent and a tax advisor before proceeding to deal with tax lien complications.