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Tax Foreclosures - Government Foreclosures

A tax foreclosure is a legal procedure used by government agencies to enforce a lien against a property for non-payment of income taxes or property taxes. Government agencies hold tax foreclosures one to four times a year.

The IRS will sometimes place a tax lien on a home or other real property and sell it at an auction to recover the unpaid income taxes. When a tax lien is put on a property, it takes priority over all other liens on the property.

State and local governments raise revenue via property taxes. When property taxes become delinquent, an involuntary tax lien is placed on the property by the taxing authorities to recover the amount owed. If the delinquent taxes are not paid within a predetermined time frame, the property is then sold at public auction. A minimum opening bid is required that covers the delinquent property tax amount, legal costs, interest, penalties, and miscellaneous fees.

Tax Foreclosures - Bank Foreclosures

The highest bidder at the auction receives a tax-sale certificate when he pays the bid amount. The delinquent property owner can regain title to the property if he pays back the lien amount plus interest and miscellaneous expenses before a redemption period set by law expires. The redemption period can vary from several months to several years in some states. If the delinquent property owner exercises his right to redemption, he must pay an interest charge that can be fairly large on the amount paid at foreclosure by the purchaser.

When the redemption period expires, the purchaser can petition the court to foreclose and remove the delinquent party’s right of redemption. When the tax foreclosure process is complete, the court issues a deed that conveys the property title to the purchaser. If the bid amount was greater than the amount owed to the government, the excess amount will go to the next property lien holder or to the previous owner if there is no lien holder.

All liens on the foreclosed property are generally removed upon completion of the tax foreclosure process. However, if a previous lien holder attempts to enforce his lien on a foreclosed property, it is the new owner’s responsibility to defend against his claim.

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