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It is true that every state has procedures for local government real estate tax foreclosures. However, each individual state determines the regulations and procedures surrounding government tax foreclosures in that state.
Some states require a redemption period wherein the original owner of the foreclosed property may redeem the property by payment in full of the taxes, penalties, and fees owed. Other states expressly forbid similar redemption periods.
Additionally, there may be differences in government real estate tax foreclosure procedures within states. For example, the state of Maine does not have a state-wide policy on redemption periods. Each county or municipality sets its own policy. On the other hand, the state of Missouri has a one-year redemption period policy for the first and second tax sales of a property, but only a 90-day redemption period should the same property be sold for delinquent taxes on a third occasion.
Some jurisdictions, such as Florida, while they do not allow a redemption period after the sale, do make provisions for the prior owner of the property to challenge the validity of the government tax foreclosure under certain circumstances.
Other states allow different redemption periods for different types of land. In Nevada, vacant land has a redemption period of 120 days. However, for improved land, the redemption period is much longer: two years.
The penalties a prior owner must pay in order to redeem the property, varies widely from one jurisdiction to another. Penalties can range from as little as ten percent to as much as fifty percent, depending on the state in which the sale takes place. In some states, the penalty percentage varies based on how quickly the prior property owner is able to redeem the property. In Texas, agricultural property that is redeemed in the first year incurs a twenty-five percent penalty, but agricultural property redeemed in the second year from the date of the government tax foreclosure sale incurs a fifty percent penalty.
In Illinois, and certain other states, the use of the real estate plays a factor in the amount of the penalty. The penalty on farmland is up to twenty-four percent per year, and the penalty on land that is not used for farming is up to thirty-six percent per year.
There are three types of government property tax foreclosure procedures, and they are dictated by state law. Each state differs.
In tax lien states, when taxes are not paid, the taxes are auctioned as liens on the property. Investors bid down the interest rate of the tax due, which the homeowner will have to pay in addition to the delinquent tax in order to redeem his or her property. The lowest interest bid wins. With this procedure, a win-win-win situation results. The county gets its money to use for local government programs, the delinquent taxpayer gets more time to redeem his taxes, and the investor receives interest on his or her investment. And if the taxes plus interest and penalties are not paid by the homeowner in the period allocated by the state, the investor may foreclose on the property.
In tax deed states, there is no "lien period" for the owner to catch up. If the taxes are delinquent, the property is auctioned with no redemption period. Investors make money from the equity split between value of the property and the amount of taxes due. Tax deeds tend to be more expensive, and represent higher-risk investments.
The third category of real estate foreclosure is called a "redeemable tax deed," whereby the deed to the property is auctioned, but there is a redemption period for the delinquent taxpayer to "buy back" his or her property by paying a large penalty or interest rate.
So there are a variety of approaches to government tax foreclosure sales and redemption periods among states and even counties. So be sure to investigate the policies and procedures that apply to your situation, so you can come to an informed approach that will best benefit you in handling or avoiding possible foreclosure.
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