Unpaid County Property Taxes and What they Mean for Your Community

28 Feb 2018

Owners who fail to pay their association or mortgage lender often also fail to pay county property taxes, which can result in a tax deed sale and related elimination of past-due assessments. Such taxes accrue annually on November 1st and are late if not paid by April 1st of the following year. On June 1st, the tax collector can sell a “tax certificate” for the delinquent taxes and interest thereon, at a public auction. The purchaser of a tax certificate (e.g., the county where the property is located, if there are no bidders) may then charge the cost of purchasing the certificate plus interest to “redeem” (resolve and eliminate) the certificate by paying the taxes and interest due.

If the tax certificate is not redeemed at least 2 years after its issuance, the holder can apply for a tax deed sale. If the taxes are not redeemed, a public auction is held online. The opening bid at such sales is generally comprised of the unpaid taxes and interest thereon, and the fees and costs incurred by the applicant. The highest bidder receives a tax deed, free of inferior encumbrances.

Because a tax deed eliminates any past-due charges against the property (as well as any mortgage against the property), associations occasionally (but rarely) redeem one or more tax certificates, or purchase the property at the tax deed sale. Redeeming a certificate only resolves the taxes due, and the association’s payment may not be recoverable unless the association’s governing documents provide for recovery, thus making redemption by an association rare. Likewise, purchasing the property at the sale may leave superior encumbrances which must be paid (e.g., federal taxes, municipal code enforcement liens, and other superior liens). Moreover, even after all liens are paid, it is difficult to obtain a title policy following a tax deed sale, and thus to sell the property. The association should also consider the amount of past-due assessments and related charges, and confer with counsel, in deciding whether paying taxes for a past-due owner is financially appropriate. Similarly, the association should also confer with counsel as to whether the past-due balance can be paid out of any "surplus" funds remaining after the sale.

We hope the foregoing will help your understanding of potential outcomes and options regarding past-due taxes for properties within your community. This update is not intended as legal advice, which must be specifically tailored to the terms of an association’s governing documents, and the specific circumstances of each case.