Do delinquent property taxes affect your credit? The answer is yes, but there is help. You can inquire about payment arrangements or exemptions with the county or get a property tax loan. How is your credit score affected, and what is a property tax lien?
A lien is a legal right or claim against assets generally used as collateral to satisfy a debt. In Texas, appraisal districts are required to appraise property values on January 1, and at the same time, a lien is attached to the property. The purpose of the lien is to ensure the property taxes are paid. As property tax liens are statutory and thus created by law tax liens automatically become public records. Property tax liens take priority and are superior to all other types of liens.
Do property liens show up on credit reports? They used to, but in 2018 all tax liens were removed from credit records by the three credit bureaus. This decision was the result of a Consumer Financial Protection Bureau initiative. Previously, tax liens appeared on your credit report for seven years, even if you paid them off. You can get a free credit report from the three reporting agencies annually, and if you still have a property tax lien on your credit report, contact the relevant agency to have it removed.
Everybody wins when property taxes are paid, and everyone loses when property taxes are unpaid. Why? Because they are the largest single funding source for community services. Most of the funds are spent on public schools and educational facilities, and it also supports emergency services such as police departments and fire protection. In what other ways can unpaid property taxes hurt you?
You End Up Paying More
Did you know that from February 1st every year, penalties and interest charges accumulate on your unpaid tax bill in Texas, and you end up paying more than your original bill? Interest is 12.0% per year on your base tax bill outstanding every month until the account is fully paid.
Penalties are 6% on February 1st, 1% on the first of March to June, with a final 2% penalty on July 1st. And from July 1st, an up to 20 percent penalty for attorney fees accrues to your property tax bill. Ultimately, the collection fees, penalties, and interest on property taxes can be around 48% in the first year alone.
You Could Lose Your Home in a Foreclosure Sale
How else does a tax lien affect your credit? When a property tax lien is placed on your residential or commercial property, the taxing authority has the right to foreclose on it. It means you could lose your home in a foreclosure sale, and the funds are used to pay the outstanding property taxes.
You Could Be Subject to Litigation
Property Tax foreclosure in Texas is via a judicial process. Those attorneys fees referenced above pay lawyers to file suit against you, ultimately obtain a judgment, and then foreclose on that judgment. What does all of that mean? You will be served with a lawsuit, along with anyone that has an interest in the property (your HOA, other owners, lenders, and/or other creditors).
You will be ordered to show up to court hearings. Lawyers may abstract the judgment against you, creating a public record of your delinquency and attaching as a claim the obligation you owe the county against any real other real property you own or inherit. Your property will be publicly posted for judicial foreclosure sale, and ultimately foreclosed upon.
You Could Have Trouble Qualifying for a Loan
The judgment against you will affect your ability to obtain unrelated financing and negatively affect your credit profile, even if not your score. Due to the property tax lien, you might find it difficult to sell your property, refinance your home, or qualify for a loan unless you pay the property taxes and the lien is removed.
Due to the property tax lien judgment, you might find it difficult to sell other unrelated property you own, refinance that property, or qualify for a loan unless you pay the property taxes and the lien is removed and the judgment is satisfied. Although liens don’t show on your credit report, they are public records, and potential creditors will know you have a lien on the property and your overall credit profile will be negatively affected.
AFIC can provide you with an instant quote by completing the form on our homepage. For qualifying properties, we can help you pay off your delinquent taxes and offer you the following benefits:
We pride ourselves on finding solutions to suit the unique needs of our clients. If you would like to discuss our property tax loans, please contact our experienced team at AFIC today.
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YOUR TAX OFFICE MAY OFFER DELINQUENT TAX INSTALLMENT PLANS THAT MAY BE LESS COSTLY TO YOU. YOU CAN REQUEST INFORMATION ABOUT THE AVAILABILITY OF THESE PLANS FROM THE TAX OFFICE.
If you are over 64 or disabled, don’t get a property tax loan, contact your tax office about a deferral.
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