The 3 Demons Of Tax Lien Foreclosure

Performance Property Real Estate Question

Q: We received a foreclosure notice this month. I was surprised because our grandmother’s home is paid off. I know we owe taxes but I didn’t think they could foreclose for that. Earl, Orange, NJ

A: Yes, Earl, theoretically any unpaid lien holder can file a foreclosure lawsuit on a property to recoup what is owed. Unfortunately, tax lien foreclosure is a faster, more expedited process than mortgage foreclosure so it’s important to act quickly to pay off the past due property taxes to force the plaintiff to cancel the lawsuit. There are 3 individuals that you have to worry about when facing a tax lien foreclosure:

  1. Tax Lienholder
  2. Foreclosure Attorney
  3. Bankruptcy Attorney

The tax lienholder is normally an investor or institution who pays a property owner’s unpaid property taxes in order to earn a high interest rate in return along with the chance to foreclose on the property after a certain amount of time has elapsed. Tax lien holders essentially have the power of the municipality where the property taxes were owed and rarely if ever agree to payment plans with homeowners who are unable to pay their property taxes. The foreclosure attorney works for and is paid by the tax lien holder so they work in the interest of the tax lien holder. Bankruptcy attorneys often present themselves as knights in shining armor to homeowners facing tax lien foreclosure because foreclosure actions temporarily stop when a bankruptcy case is filed. While a bankruptcy temporarily delays the foreclosure from proceeding, there are several pitfalls that work against the interests of the property owner. During a bankruptcy, property owners are unable to settle the foreclosure–they can’t obtain mortgage financing or sell their property. Bankruptcy attorneys often mislead homeowners facing tax lien foreclosure who are also dealing with an unresolved estate into filing chapter 13 bankruptcy. The problem is that only a living person can file bankruptcy, so the estate of someone that has died cannot get approved for a bankruptcy repayment plan. Courts normally reject these attempts after a few months which usually results in the executor of the estate spending thousands of dollars in legal fees while at the same time ruining their personal credit and reducing the amount of money that will be left to the estate. The simple truth about Chapter 13 bankruptcy is that even in a best case scenario where things work out and a payment plan is approved and a homeowner completes a 5 year payment plan, homeowners almost always end up paying more $ after filing bankruptcy than you would have if they had never filed bankruptcy in the first place. Thanks for your question, Earl.

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