Taxing Times: Lien Taxes on Foreclosed Properties

The National Tax Lien Association in Pensacola, Fla., estimates that 28 states will auction off more than $20 billion of unpaid property tax bills this year to raise cash — which would be a fourfold increase since 2004.

For the first time ever, mortgage servicers and lenders are falling behind in fronting overdue tax payments, and now some investors are ending up with properties, said Howard Liggett, the group's executive director.

"There were so many mortgage failures and there's so much chaos, that some tax liens are falling through the cracks," he said. "There's still another massive round of foreclosures coming, and anytime you see foreclosures, you see more tax liens as well."

If the taxes on a property are not paid, the lender can lose the property to a tax bill, though it does not happen very often, he said.

Investors have been eagerly snapping up tax liens because interest charged can range from 12% to 18%, he said.

In Florida alone, the number of delinquent tax certificates offered for purchase by third-party investors spiked 30% last year and is expected to jump 20% this year, Liggett said.

There also is a huge demand from states to collect every dollar from delinquent property taxes.

"States are starved for cash, the cutbacks have been Draconian and the reliance on local property taxes hasn't subsided," Liggett said.

source: American Banker