Local governments can foreclose on
property owners who are delinquent in
their property taxes or other government
levies for a minimum period of time
specified in the local tax lien statute.
However, lenders and servicers are unlikely
to allow a mortgaged property to be lost to
tax foreclosure if it has significant value,
and will ensure that property taxes are
paid while a loan is outstanding (either
by requiring tax payments to be escrowed
or by paying them directly themselves).
Similarly, if a property retains significant
value, lenders or servicers will pay taxes
due on the property while a property is
held in REO.17 Accordingly, in most areas,
it is properties that have been sold out of
REO inventories to individual owners or
investors lacking the capacity or intent to
maintain their new properties that are most likely to be subject to tax foreclosure.
On a practical level, the practice many jurisdictions have of recouping unpaid property
tax revenues in the near term by selling tax liens rather than foreclosing on properties
themselves effectively eliminates the opportunity for non-profits and local governments
to use tax foreclosure as an acquisition tool, because the government no longer holds the
lien. Jurisdictions without judicial tax foreclosure proceedings (generally thought to be
slower and less efficient than administrative proceedings) may have difficulty disposing
of properties once acquired due to title concerns. As described in further detail in the Genesee County Land Bank case study in Part IV, reforming tax foreclosure laws to address
these problems and expedite the proceedings can open up new opportunities for pulling
properties out of the hands of speculators.
Advantages:
Judicial tax foreclosure processes wipe out
other liens by operation of law, cleaning
title of all outstanding mortgages and
other claims. Acquisition costs can be very
low, though the properties obtained may
carry liabilities (e.g., demolition costs).
Drawbacks:
Many properties will already have suffered
significant physical degradation due to
an extended period of neglect. Properties
acquired through some states’ nonjudicial
tax foreclosure processes may
have uninsurable title because of due
process concerns.Furman Center for Real Estate and Urban Policy
Local governments can foreclose on
property owners who are delinquent in
their property taxes or other government
levies for a minimum period of time
specified in the local tax lien statute.
However, lenders and servicers are unlikely
to allow a mortgaged property to be lost to
tax foreclosure if it has significant value,
and will ensure that property taxes are
paid while a loan is outstanding (either
by requiring tax payments to be escrowed
or by paying them directly themselves).
Similarly, if a property retains significant
value, lenders or servicers will pay taxes
due on the property while a property is
held in REO.17 Accordingly, in most areas,
it is properties that have been sold out of
REO inventories to individual owners or
investors lacking the capacity or intent to
maintain their new properties that are most likely to be subject to tax foreclosure.
On a practical level, the practice many jurisdictions have of recouping unpaid property
tax revenues in the near term by selling tax liens rather than foreclosing on properties
themselves effectively eliminates the opportunity for non-profits and local governments
to use tax foreclosure as an acquisition tool, because the government no longer holds the
lien. Jurisdictions without judicial tax foreclosure proceedings (generally thought to be
slower and less efficient than administrative proceedings) may have difficulty disposing
of properties once acquired due to title concerns. As described in further detail in the Genesee County Land Bank case study in Part IV, reforming tax foreclosure laws to address
these problems and expedite the proceedings can open up new opportunities for pulling
properties out of the hands of speculators.
Advantages:
Judicial tax foreclosure processes wipe out
other liens by operation of law, cleaning
title of all outstanding mortgages and
other claims. Acquisition costs can be very
low, though the properties obtained may
carry liabilities (e.g., demolition costs).
Drawbacks:
Many properties will already have suffered
significant physical degradation due to
an extended period of neglect. Properties
acquired through some states’ nonjudicial
tax foreclosure processes may
have uninsurable title because of due
process concerns.Furman Center for Real Estate and Urban Policy