How Your Parents’ Failure to Pay $400 in Tax Bills Could Cost You Your Inheritance

Gary North - February 06, 2019

Tax liens are sold to investors by municipal governments. So are utility liens. A home owner could lose her property for failure to pay a $400 bill. Horror stories like these are common enough to get picked up by the media.

Old people may not understand the warnings sent by local governments. If they fall behind in payments, the city may sell tax liens to investors. They sell these at discounts. The discounts make some of these investments pay 18%. The more common figure is 7% to 10%.

Real estate investors who specialize in these investments sometimes settle for interest payments from the owner. But the owner may be forced to pay all back taxes or utility bills. If he can’t, he loses his home.

“It’s a win-win for investors,” said John Rao, a consumer credit and bankruptcy attorney and the author of the report. Either the investor gets their investment back with interest or they get the home — typically, for a pretty sizable discount to what the home is worth.

The report cited a case of an 81-year-old Rhode Island woman who fell behind on a $474 sewer bill. A corporation bought the home in a tax sale for $836.39. The woman was evicted from the home she had lived in for more than 40 years and the corporation resold the place for $85,000, the report said.

Most investors, however, buy tax liens for the interest. That’s because many states allow investors to charge rates of 18% or more on the outstanding debts. And, in some cases, as much as 20% to 50%, the report said.

Nationally, property tax delinquencies are at $15 billion this year.

If your parent gets trapped, you could lose your inheritance: the house. It is crucial that you know the status of property taxes and other city bills.

One elderly Montana woman, who lived alone and had no close family to help her, fell more than $5,000 behind on taxes, the report said. After she failed to respond to letters from the company that bought her home in a tax sale, she was evicted from her Missoula home. As a result, she lost about $150,000 in equity in the property, according to the report.

For details about the tax lien situation, click the link.

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Published on July 11, 2012. The original is here.

In the next recession, these stories will reappear. People have short memories.