Topic 18.4: Nonpayment of Real Property Taxes

Learning Objective

After successfully completing this topic, you will be able to describe the procedure for collection of taxes by selling tax certificates.

Delinquent Taxes

Ad valorem tax payments are due on November 1 for that year. The taxes become delinquent April 1 of the following year. On April 1st, a 3% penalty is added. Accounts unpaid as of May 1st are charged an advertising fee.

The property owner will receive notification that a tax certificate will be sold on the property from published notices in a local newspaper. Delinquent properties are advertised in a local newspaper once a week for three consecutive weeks. The notice sets a time and date for the sale, gives the legal description of the property, the owner’s name, and the amount of taxes due.

If the taxes remain unpaid, a tax certificate, which is a lien against the property, will be sold on or before June 1st. Once a certificate is sold, the amount due from the property owner increases substantially due to the costs of the sale and a minimum of 5% interest.

Purchasing Tax Certificates

A tax certificate is an enforceable first lien against the property for unpaid real estate taxes. The certificate holder is an investor who pays the taxes for a property owner in exchange for a competitive bid rate of return on the investment. The tax certificate sale allows investors to purchase certificates by paying the tax debt. The sale is conducted online in a reverse-auction style with participants bidding downward on interest rates starting at 18%; the certificate is awarded to the lowest bidder who will pay the taxes, interest and costs, and accept the lowest rate of interest. A tax certificate earns a minimum of 5% interest for the investor until the interest has accrued to greater than 5%, except for “zero” interest bids, which always earn “zero” interest.

The life of a tax certificate is seven years. In the event of a bankruptcy filing, the life of the certificate may be extended. If no action is taken by the tax certificate holder during the 7-year period and the taxes remain unpaid, the tax certificate is cancelled and the certificate holder will lose his or her investment.

Redeeming Tax Certificates

If the purchaser of the certificate holds that certificate for a period of two years from the date of delinquency and the property owner does not pay the tax, the certificate holder may file a tax deed application with the Tax Collector on April 1st. For example, certificates issued on June 1, 2018 were eligible for tax deed application on April 1, 2020. The property owner is notified of this action and if the owner still does not pay the taxes, the property will be sold to the highest bidder in a public sale conducted by the Clerk of the Circuit Court.