The Property Tax Government Foreclosure Process

Late Payment of Property Tax Bill Results in an Immediate Lien, but Owners have Five Years to Pay Before it is Sold at a Tax Sale

When California property owners do not pay their property taxes–or fail to pay them on time–the overdue taxes are converted into a tax lien. Owners who fail to pay their property tax bill for five years risk losing their home to a foreclosure auction.

California property tax sales are usually conducted by county tax authorities through a foreclosure and sales process governed by state law. Under the law, when the taxes on a property remain unpaid as of 12:01 a.m. on July 1 of any year it will be considered “tax-defaulted” for that year. The tax-default date is based on the county’s fiscal year, which ends June 30. Property tax bills are usually split into two parts, with one due November 1 and the second on February 1.

While some states allow the sale of tax lien certificates where the lien itself is sold through an auction process, California is not one of them.

Property Tax Deadline Unaffected by COVID-19

Despite the COVID-19 pandemic which struck California during the spring and summer of 2020, the July 1 property tax default deadline has remained in effect statewide. The July deadline is set by state law, so county tax authorities are powerless to change it themselves.

However, under state law county tax authorities are permitted to waive late-payment penalties and interest in cases that are reasonably beyond the taxpayer’s control. In the Bay Area,  Alameda County and San Francisco County have encouraged residents and small business owners who are unable to pay their property tax bills to submit requests for a waiver of delinquent property tax penalties and interest. Waivers won’t be granted automatically, meaning taxpayers will need to document their COVID-19-related hardship to have the penalties waived.

Property Sold After Five Years of Unpaid Taxes

Property that has been tax-defaulted for five years will be subject to the county tax authority’s power to sell it to satisfy the unpaid taxes. If the property is also the subject of a nuisance-abatement lien the tax authority is allowed to sell the property after three years. California law provides property owners with the right to redeem their property after a tax default if the owner pays the overdue tax, plus interest and costs, prior to its sale.

After the property has been sold, the former owner may challenge the sale by convincing the county board of supervisors to rescind it. To successfully challenge the tax sale, the former owner must show that the sale was either invalid or that there were irregularities in the sale. It is difficult for former owners to demonstrate that either of these occurred, therefore challenges are rarely successful.

There is a one-year statute of limitations to challenge a tax sale. As a result, title companies are reluctant to issue title insurance on a property sold at a tax sale until after the one-year limitations period has passed.

Tax Sales Governed by State Law

California law requires that information on upcoming tax sales be published in a newspaper at least once a week for three weeks prior to the sale. Additionally, that information is often made available on the county’s website. State law sets the minimum bid amount for the property as the redemption amount (unpaid tax, interest, and costs), plus any costs incurred by the county.

County tax auctions are usually conducted in person, but in Alameda and San Francisco counties they are conducted through an online bidding process. However, prospective buyers looking to place a bid on properties in those counties should know they rarely conduct tax sales.

The winning bidder must pay for the property at the close of the auction and, in the case of in-person auctions, personal checks are not accepted. In addition to the bid amount, the successful bidder must pay a county transfer tax of 55 cents per $500 of the sale price.

Some Liens, Taxes, and Easements Survive the Tax Sale

Generally, tax-defaulted property sold at a tax sale is free and clear of any encumbrances that existed before the sale, such as creditor liens. Those encumbrances that survive the sale include:

• Any federal tax liens
• Liens for tax installments and special assessments that will become payable after the sale;
• Liens from any taxing agency that does not consent to the sale;
• Tax agency liens for special assessments that were not included in the amount necessary to redeem the property at the time it was sold;
• Certain easements, water rights, titles held separately from the property’s title, and recorded restrictions;
• Unpaid assessments for infrastructure improvements made under the Improvement Bond Act of 1915; and
• Unpaid special taxes for community facilities districts.

State Tax Liens

The state of California can also place a tax lien on a taxpayer’s real or personal property for failure to pay a tax bill in full, set up a payment plan, or respond to the state’s letters. The state tax lien serves to notify the taxpayer’s other creditors of the debt. While the state tax lien is effective for 10 years (or longer, if extended) and can limit the taxpayer’s ability to buy, sell, transfer, or refinance the property subject to a lien, the state will not foreclose upon the lien.

Categorised in: Government, Taxes

This post was written by Sean Allaband