Options for Selling a Home With Unpaid Property Taxes or Liens in Maryland 

What Are Unpaid Property Taxes and Liens?

Property taxes fund local government services, including schools, infrastructure, and public safety. When property taxes go unpaid, the local government places a tax lien on the property, which is a legal claim against it as collateral for the debt.

Key facts about tax liens:

• Priority: Tax liens take precedence over other claims, including mortgages.
  
• Impact on Selling: A tax lien must typically be resolved before transferring ownership.
  
• Consequences of Inaction: If unresolved, unpaid property taxes can lead to foreclosure or a tax sale.

Understanding these dynamics is essential for any homeowner dealing with unpaid taxes or liens.

Common Causes of Unpaid Property Taxes

Unpaid property taxes often arise due to financial difficulties, unexpected life changes, or personal situations. Here are some of the most frequent causes:

1. Joblessness, Debt, or Financial Hardship

Economic difficulties such as job loss, accumulating debt, or unforeseen expenses can make it difficult for homeowners to prioritize property taxes. When household finances are stretched thin, essential bills like mortgage payments, utilities, and medical expenses often take precedence over property taxes.

Prevention Tip:
To avoid falling behind on property taxes, consider setting up an escrow account with your mortgage lender. This allows your property taxes to be automatically paid from your monthly mortgage payment, ensuring taxes are managed as part of your regular budget. This can provide peace of mind and prevent missed payments, especially if your finances are fluctuating.

2. Cognitive Decline or Inability to Manage Finances

Seniors or individuals facing cognitive challenges due to conditions like dementia, Alzheimer’s disease, or stroke recovery may have difficulty keeping track of their finances. The inability to remember deadlines, manage bills, or even open financial mail can lead to delayed or unpaid property taxes, accumulating penalties and interest over time.

Solution:
Family members, trusted friends, or legal guardians should consider stepping in to manage finances, ensure property taxes are paid on time, and address overdue amounts. It’s also important to explore professional options like a financial power of attorney to assist in overseeing financial matters. In cases of significant cognitive decline, relocating the homeowner to a setting that offers more financial support, like assisted living, could provide a more secure environment for managing taxes and other financial responsibilities.

3. Lack of Awareness or Inherited Property Obligations

Homeowners sometimes don’t realize their property taxes are overdue, particularly if they’ve inherited a property. If the homeowner inherited the property unexpectedly or doesn’t reside in it, they may overlook or fail to keep up with tax payments. This is particularly common when someone inherits property from a relative who passed away, and the new owner may not be fully informed about the property’s tax obligations or other financial responsibilities.

Action Step:
To avoid this scenario, heirs should ensure they obtain a detailed title report for any inherited property. This will reveal any outstanding tax liabilities or liens associated with the property, providing clarity about the homeowner’s obligations. Heirs should also consult with an estate planner or attorney to understand the full scope of financial responsibilities associated with inherited real estate and take steps to address any unpaid taxes as quickly as possible.

4. Property Value Increases or Tax Assessment Surprises

In some cases, homeowners may struggle to keep up with property taxes due to significant increases in the assessed value of their property. This often happens in areas experiencing rapid gentrification or when local property values unexpectedly rise. Homeowners may not be prepared for the higher tax bill and find themselves unable to pay the increased amount.

Solution:
Homeowners who experience sudden increases in property taxes should review their annual tax assessments carefully. If they believe the property’s value has been overestimated, they may have the option to appeal the assessment. Local governments often provide a process for disputing property tax assessments, and hiring a property tax professional or attorney can help ensure that the appeal is filed correctly.

5. Divorce or Family Disputes

Divorce or family disagreements can complicate the payment of property taxes, especially when one party is responsible for the home but doesn’t have the financial means to maintain it. In cases of separation, one spouse may fall behind on taxes because they are struggling financially, leading to unpaid property taxes that may affect both parties involved.

Solution:
When going through a divorce, it’s crucial to clearly define financial responsibilities in the settlement agreement. Both parties should understand who is responsible for paying the property taxes and other related expenses. If one spouse is awarded the home, they should be prepared for the ongoing tax burden or consider refinancing the mortgage to account for the additional responsibility.

6. Mismanagement of Payment Due Dates or Budgeting Errors

Some homeowners simply mismanage their finances by failing to budget for property taxes, especially if they are not part of a mortgage escrow account. Property taxes can be due annually or semi-annually, and missing these deadlines can result in late fees, interest, and other penalties that accumulate over time.

Action Step:
Homeowners can prevent missed payments by setting reminders for tax due dates or using budgeting tools to set aside money for property taxes each month. Even if property taxes are not part of a mortgage payment, building a specific savings plan for taxes can help avoid the stress of having to come up with a large sum at once. It may also be beneficial to contact the local tax authority to inquire about payment options or potential tax relief programs.

7. Misunderstanding or Confusion Over Tax Exemptions

In some cases, homeowners may be eligible for tax exemptions, reductions, or deferrals but fail to take advantage of them. This is common among senior citizens, veterans, or individuals with disabilities who may qualify for local, state, or federal tax benefits. If they don’t know about these exemptions or don’t properly apply for them, they may end up paying more in taxes than necessary.

Solution:
Homeowners should regularly check with their local tax office to ensure they are aware of all available exemptions or deferrals. Some areas offer tax relief programs for specific groups, such as senior citizens or disabled individuals. By staying informed and filing for any applicable exemptions, homeowners can reduce their annual tax burden.

Consequences of Unpaid Property Taxes or Liens

Before exploring options to sell, it’s important to understand the repercussions of unpaid property taxes and liens, which may include:

• Tax Sales: Local governments can auction properties with delinquent taxes to recover unpaid funds.
  
• Foreclosure: Mortgage lenders may foreclose if taxes remain unpaid, as it jeopardizes their collateral.
  
• Reduced Marketability: Homes with liens are less appealing to traditional buyers.
  
• Legal Fees and Penalties: The longer taxes go unpaid, the higher the penalties, interest, and fees.

How to Pay Off a Tax Lien Before Selling

The simplest way to resolve unpaid property taxes is to pay off the lien before listing the home for sale. Here’s how to do it:

1. Contact Your Local Tax Office: Determine the exact amount owed, including penalties and interest. Request a detailed statement.
   
2. Arrange Payment: Pay the full amount or negotiate a repayment plan if funds are limited. Some tax authorities offer payment arrangements for homeowners in financial hardship.
   
3. Obtain a Certificate of Release: Once the lien is paid off, request a Certificate of Release to remove it from the property title. This clears the path for a smoother sale.

Options for Selling a Home With Unpaid Property Taxes or Liens

If paying off the lien upfront isn’t an option, you still have several alternatives:

1. Sell the Property and Use the Proceeds to Pay Off the Lien

When selling a home with a lien, the sale proceeds are often used to pay the tax debt at closing. This allows you to resolve the lien without paying it out of pocket.

Steps:

• Work with a title company or attorney to ensure the lien is addressed during the transaction.
• Negotiate with other lienholders if the sale proceeds won’t cover all debts.

2. Negotiate a Settlement With the Tax Authority

In some cases, local tax authorities may be willing to negotiate a reduced settlement for homeowners facing severe financial hardship. This can involve waiving penalties, reducing interest, or even lowering the total amount owed.

Steps:

• Contact your local tax office to explain your situation and request a hardship review.
• Enlist a tax attorney or real estate agent experienced in negotiating with tax authorities.

3. Sell to a Real Estate Investor

For a quick and hassle-free sale, consider selling your home as-is to a real estate investor. Many investors specialize in purchasing properties with unpaid taxes or liens, handling the debts as part of the transaction.

Additional Steps for Unique Situations

Selling on Behalf of a Resident Who Can’t Live Independently

If the property owner can no longer manage their affairs, legal guardians or family members can take the following steps:

• Obtain Legal Authority: If necessary, secure guardianship or power of attorney to handle financial decisions.
• Evaluate the Property: Determine its market value and assess any outstanding debts.
• Transition to Appropriate Housing: Use the proceeds from the sale to cover debts and fund a move to assisted living or a care facility.

Handling Inherited Properties

Inherited homes with unpaid property taxes or liens require careful attention:

• Run a Title Report: Identify all outstanding debts, including tax liens.
• Decide on Repairs or Selling As-Is: Choose between investing in repairs or selling directly to an investor for a quicker process.
• Consult Professionals: Tax attorneys and real estate investors can help navigate complex situations.

Tips for Avoiding Future Tax Issues

To prevent falling behind on property taxes in the future, consider these strategies:

• Create a Tax Budget: Set aside funds monthly for property taxes.
  
• Apply for Relief Programs: Maryland offers property tax relief programs for seniors, veterans, and low-income residents.
  
• Set Up an Escrow Account: Ensure property taxes are paid automatically with your mortgage.
  
• Stay Informed: Keep track of tax deadlines and statements.

Selling a home with unpaid property taxes or liens in Maryland can feel overwhelming, but understanding your options can make the process manageable. Whether you choose to pay off the lien, negotiate a settlement, or sell directly to a real estate investor, there’s a path forward to resolve debts and achieve financial stability.

If you’re facing tax issues and need assistance selling your home, Perry Hall Investment Group specializes in helping homeowners navigate these challenges. Contact us today to learn more about how we can provide a fast, stress-free solution. (410) 989-5200