been reading a lot of these posts today...

[TRfromillino]

And I have a question! Imagine that!

If you file bankruptcy, mortgage is discharged,and you keep up on the mortgage payments and stay, but can't pay the real estate taxes, does that give the county first lien on the property? If it's sold for back taxes, what happens to the mortgage lien?

[justbroke]

You would need to consult your State's non-bankruptcy laws with respect to property taxes. In most States, including Florida, property taxes enjoy a super-priority lien status. They are paid before anyone else in a foreclosure (unless there is an IRS lien). In most States, they sell tax certificates when you don't pay. The tax certificate holder can convert that into a tax deed if you don't cure the unpaid taxes within a certain period of time (usually 2 years). There are some other limitations about foreclosing on the tax deed and how much the property can sell for (which is State specific).

[TRfromillino]

So, if I get what you are saying, if a house sold for back taxes, etc. to a buyer, that buyer can apply for a tax deed, but still has to satisfy the mortgage holder (bank) before he is the owner?

[justbroke]

So, if I get what you are saying, if a house sold for back taxes, etc. to a buyer, that buyer can apply for a tax deed, but still has to satisfy the mortgage holder (bank) before he is the owner?

This depends on the State, so I'll talk about Florida.

When you don't pay property tax in Florida, the county sells a "tax certificate" for the amount you owe. This allows the county to have all the money from their budget while an "investor" gets a tax certificate. The holder of the tax certificate can charge up to 18% per year in interest. The interest rate is set based on the auction for the tax certificate and can range from low amounts, like 0.5% to 18%. The investor then has to sit on the tax certificate for 2 years. During this period, they get to accrue the interest rate. The homeowner can "redeem" the certificate by paying the face value, plus interest, plus some sort of special assessment.

If the homeowner does not redeem the certificate within the two years, the investor can ask for a tax deed. A foreclosure "sale" would occur upon the request for the deed. It is rather complex, but if the property is a homestead, the property can't sell for less than half the assessed value. There is an impact if there are surviving liens, mortgages, other encumbrances. Proceeds from the sale are divided amongst lienholders.

It is rather complex and I personally have never understood the purpose, except for some investor who wants a potential 18% return on investment, for use on properties that are underwater! I don't think I'd use this as a means to acquire properties -- unless they have no liens -- and merely as a vehicle for some high interest returns (18% per year is not bad!). Think about it, the taxes eventually get paid in most cases. There is risk and tax certificate speculators should be (or are) aware of the potential pitfalls.

[TRfromillino]

Certainly not anything I'm interested in, but as I was reading over many past posts this kept coming up but was never explained. In someways it looked like whoever bought the tax debt then owned the house, but in my mind, I kept thinking no bank is going to lose a house to taxes, if it's decent. Just seemed out of whack, so i asked!