As the mortgage crisis enters its third year and unemployment rises above 10% in many areas of California, more and more people are unable to pay their property taxes. If you are in default on your property taxes or considering a default, here is the law you should know.
First, property taxes are a secured claim against the real property. They are not a personal debt and there is no criminal penalty if you cannot pay your property taxes. If your home forecloses and there are delinquent property taxes at the time of the sale, it will not follow you. Therefore, if you do not have the money to pay the taxes, do not borrow the money from a credit card or 401k account/ 401k loan to make the payment. In the event the home is lost in a foreclosure and you borrowed the money, you will still be required to repay the credit card debt (even potentially in bankruptcy because taxes paid with a credit card may be non-dischargeable) or through the 401k loan.
Second, if you cannot pay your property taxes when due, the County cannot immediately foreclose on your property. In fact, it is very rare for a county to foreclose on real property for non-payment. In most places in California, real property must remains in tax defaulted status for five or more years before it will become subject to the Tax Collector’s power of sale.
Third, if you cannot afford to pay your property taxes, you have several options. A good option is to enter into an Installment Plan of Redemption which is a 5 year plan that allows a taxpayer to pay defaulted taxes in five installments. However, prior to applying for an Installment Plan you should contact your mortgage lender to make sure they will allow the payment plan to pay taxes in default. Sometimes, mortgage lender will automatically advance for the past due taxes and establish an impound account for past due taxes and as well as establishing an impound account for future taxes and insurance. The negative consequence of a lender paying the taxes is that they usually require the past due taxes to be repaid over 1 year versus the 5 years allowed by the County. However, the positive consequence is that the accrual of interest by the County is stopped and if you qualify for a loan modification, the past due taxes are in most instances paid through the modification. Another option is to see if you qualify for tax payer assistance. The common form of assistance is through the Property Tax Postponement for Senior, blind and disabled persons which allows qualified homeowners to postpone payment of all or a portion of the property tax due on their home.
Fourth, make sure your property is being taxed at the it’s current fair market value. If you feel that your current assessed value is not the current market value, you may request a review by the County. This process is commonly referred to as a Proposition 8 review.
In conclusion, there is no free lunch if you are late on your property taxes. However, there are options available to you. This is a complicated area of the law. You are in the deep end of the pool. Do not swim alone. The buddy system is essential. Seek a buddy in legal counsel prior to taking any action. I see people every day for a FREE 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.
WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.