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Property can be seized for as little as $400 in overdue taxes

There are a number of unpleasant consequences which can occur when someone is behind on their taxes. Two issues can be involved: how much is owed and what entity is owed the taxes. As we have stated in previous posts, it is possible to achieve a compromise or workout with either the Internal Revenue Service or with the state of California.

However, it was recently reported that a municipality which is owed property taxes, will sometimes choose to put a lien on a home and seize it. According to a recent news report, some localities will seize a home with a tax liability as small as $400. In those instances tax litigation may be a potential solution for an oversized consequence.

Many of our readers may be wondering how that could possibly happen. This is how it would work:

  • The local government files a tax lien on the property in lieu of taxes owed.
  • If the taxes aren't paid, the government can auction the lien to investors which are bought at a steep discount.
  • The homeowner can keep their home by paying the price of the lien, plus interest and fees.
  • If the homeowner doesn't buy the lien, the investor can seize the home, sell it and keep the profit -- which can be significant.

JP Morgan reported that it sells about $5 billion worth of tax liens to investors each year. Some believe this estimate is low because $2 billion in tax liens were sold in Florida alone. Apparently, the issue of property seizure for unpaid taxes varies by state as well as by municipality. The people this issue has impacted the most are the elderly, minority groups and those who took out subprime loans.

This post points out the importance of taking any tax liability extremely seriously. Depending upon how much is owed and what entity is owed the taxes, the consequences can be severe.

Source: Daily Reporter, "Some homeowners lose houses for a little as $400 in overdue taxes, consumer group says," Daniel Wagner, July 10, 2012

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