What are Property Tax Loans?
Home ownership is an important part of the American Dream. Often, it is taken as a symbol of prosperity and success, the pursuit of which are guaranteed in the US Declaration of Independence. As sure as death, however, there is a price we have to pay for our properties. It is called the property tax. The tax is imposed and administered by local governments, and is typically based on the assessed value of the property multiplied by the appropriate tax rate. It is levied annually although payment may be in installments within the taxable year.
There may be times, however, when homeowners, for one reason or another, struggle to meet their tax obligations. Although local tax units offer easy payment options to homeowners, such as installment payments or the opening of an escrow account for the taxes, many homeowners take out property tax loans to pay off their tax liabilities.
This is particularly true in Texas, where delinquent tax liens are not sold but pursued directly by the government. This means that if the tax continues to remain unpaid, it is the government that forecloses the property. In other states, the local taxing units are allowed to sell delinquent tax liens to private companies, which then assume the right to collect the unpaid taxes and to foreclose if these are not settled.
In order to avoid foreclosure by the Texas local government unit, private lenders enter the picture with their property tax loans. These loans are made out to homeowners for the full amount of their tax delinquency plus closing costs and interests. Repayment schemes are usually on a multi-year basis to make them easier on the homeowners’ budgets. The lien is thus transferred to the lender, which gives him the right to foreclose the property if the loan is not paid or the owner violates the contract.
Mortgage liens take a back seat to tax liens, so that in the event that the original mortgagor forecloses, the claim of the property tax lender will have to be covered first.