Owning a home is challenging enough. Paying the mortgage takes years of diligent work, sometimes extra hours.
However, unfortunate circumstances such as the loss of a job or the destruction of a house by fire or flood can affect your ability to meet your financial obligations. This can lead to delinquency.
Once the house becomes tax delinquent, the government will sell it through a tax sale to recoup owed taxes, leaving you homeless. While homeowners are frightened by tax sales, savvy investors see them as an opportunity to own property at a discount.
Delinquent tax sales significantly affect homeowners facing foreclosure and investors seeking opportunities. For homeowners, it marks the beginning of the process of losing their homes, while for investors, it represents an opportunity to diversify their portfolio. However, both must understand the process to make the most of it.
So, whether you are a distressed homeowner facing delinquency or an investor wondering how delinquent tax sales work, we share all the details below.
What Are Delinquent Tax Sales?
Tax sales are public auctions of properties with unpaid taxes. Yes, your municipality can sell your property if you fail to pay taxes for a specific period. When you don’t remit your property taxes, you’ll receive notices reminding you to clear the arrears. If you don’t comply, your property will be on the next delinquent tax sale.
Different provinces and municipalities have varying rules regarding how long a property is declared tax delinquent. For instance, in British Columbia, all properties with unpaid taxes by 31st December, two years after the tax was imposed, are tax delinquent. If the owners do not pay the late taxes plus penalties, the property is sold at a tax sale for the coming year. This is on the last Monday of September at 10:00 am.
Usually, there are two types of delinquent tax sales: tax deeds and tax lien sales. The tax sale type determines the auction process and what the winning bidder gets at the end of the auction.
Delinquent Tax Sales Auction
A tax lien sale doesn’t grant you ownership of the property. Instead, you purchase the right to collect delinquent taxes, along with interest and penalties, from the homeowner.
The auction process varies by province. The winner can be the person who offers the highest bid or the one willing to collect the lowest interest rate. Essentially, you are competing to become the most attractive option for homeowners to settle their debt and avoid further consequences. The winning bidder gets a lien certificate detailing taxes, interest, and penalties.
Your Rights and Responsibilities
As the lien holder, you become a creditor to the homeowner. You pay the debt they owe the government and get the legal right to collect the amount owed with interest. Since interest is predetermined, you cannot earn more than you bid. The property owner is given a specific time to pay you back.
However, if they don’t, you can initiate foreclosure proceedings. As a result of this legal process, you can recoup your investment by acquiring the property. However, remember, foreclosure can be lengthy and expensive.
Tax Deed Sale
A tax deed sale is a much more direct approach. You’re bidding on property ownership, not just the right to collect taxes.
The highest bidder wins. The minimum bids are set at the back taxes owed plus any associated fees. Bidders will compete by offering higher bids, which means the final bid is higher than the back taxes.
Your Rights and Responsibilities
If you win the auction, you become the legal owner of the property. This is an excellent opportunity to acquire a property below market value. However, there is a catch. Most municipalities have a redemption period during which the original homeowner can pay all the back taxes, penalties, and interest to get the property back. This means although you will earn a significant interest, you cannot be sure you’ll get ownership until the end of the redemption period.
This part also differs by province. For example, British Columbia allows a one-year redemption period from the tax sale day. You can register the deed as yours if the previous owner didn’t redeem the property.
Remember that tax sale properties are sold “as-is,” meaning hidden issues or significant repairs could be needed. However, you may not have many surprises if you do a thorough pre-sale inspection. If the previous owner or tenants still occupy the property, you must evict them to repair it. They may not cooperate, so you may have to involve the authorities. Nonetheless, be considerate and humane.
