When a property owner fails to pay property taxes, the county in which the property is located creates a lien on it for the amount owed. Tax liens are sold in order to recoup losses from unpaid taxes, and the buyers of those liens get the benefit of investing in a piece of real estate.
What Is a Property Tax Lien?
A property tax lien is a claim on a piece of property for an amount owed in unpaid taxes. It is generated when the owner fails to pay their property taxes, and the lien itself may be sold to the highest bidder to recover that amount.
It’s worth noting that in a tax sale, it is the tax lien that is sold, not the property itself. The owner has a 24 to 30 month period in which to redeem those taxes (i.e. pay them off plus any penalties). If they fail to redeem their taxes, the buyer gets a tax deed and is entitled to do as they will with the property.
How Tax Liens Work in Illinois
In the state of Illinois, the sale of property tax liens goes through the following steps.
1. Notice of Delinquency
First, the current owner is given a notice of delinquency, which lets them know that they have taxes that are past due. If they fail to pay those taxes by a certain date, a tax lien is created, and the property is listed in a published notice in the newspaper.
2. Tax Sale
If taxes aren’t paid—or if a certificate of error isn’t filed—before the annual tax sale in the county, the tax lien can be sold at a public auction. Whoever buys the lien has a claim on the property, but doesn’t technically own the property itself yet.
3. Redemption Period
After the sale, the owner has the opportunity to redeem their unpaid taxes. The tax amount plus a fee must be paid to the county within 30 months of the sale (24 months for commercial or vacant property) or the property will be turned over to the tax buyer.
Property owners must apply for an estimate of redemption, and the amount they pay will include the unpaid taxes, interest, and penalties. Those penalties will typically increase over time, so it’s in the owner’s best interest to apply as soon as possible.
4. Tax Deed
If the taxes on the property aren’t redeemed before the deadline, the tax buyer can receive a deed to the property. They can then evict the current tenants if they see fit to do so.
Navigating the Process
If you own a home or other type of property and are behind on your taxes, it may be in your best interest to either file a certificate of error (if you believe there is an error in the amount being charged) or have your lender redeem the taxes for you.
On the other hand, if you’re looking to invest in property tax liens, you’ll need to be careful to follow all requisite processes for buying and managing the property, including when it comes to eviction, making improvements, and so forth.
In either case, the guidance of a real estate attorney can be of great assistance. For more information, contact Hart David Carson LLP.