Know the tax system and don’t get caught up with a third party tax purchaser

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Submitted to the Spencer Magnet

Kentucky law allows an individual or a company, called “a third party tax purchaser” to pay a homeowner’s delinquent taxes and in exchange they get the right to hold the debt, plus 12 percent interest, plus administrative fees, plus attorney’s fees for up to 11 years as a first lien on a home. And, if the amounts due are not paid, the third party tax purchaser can foreclose on the home.
Third party tax purchasers are not taxing authorities and have no responsibility to attempt to work out the debt and are required to provide only two notices to the homeowner. The first notice is sent within 50 days of the date the delinquent taxes are paid by the third party tax purchaser and the second notice is 45 days prior to filing a foreclosure action to enforce the debt. The notices are usually a form letter, and may be mistaken as junk mail.
Homeowners must take necessary steps to protect themselves from being victim to the practices of a third party tax purchaser. The best way to protect yourself and your home from this scheme is to understand the taxing system.
Property tax bills are due each year. The following is a schedule to remind you of important dates:
September – Property tax bills are mailed to homeowners at the property address from the sheriff’s office of the county in which the home is located.
Nov. 1 – If you pay your taxes before Nov. 1, you can pay a reduced amount, after deducting a two percent discount (which is provided on the tax bill).
Jan. 1 – The property tax bill will be considered delinquent if not paid before Jan. 1.
If you have not received a tax bill by December, you should call the sheriff’s office and ask for a copy.
If a homeowner has a mortgage on his or her property, the lender may be paying the property taxes from an escrow account (an account that allows for certain required payments to be paid annually through the lender). However, homeowners must insure that taxes are paid.
Homeowners should confirm with the lender whether or not taxes are escrowed and should confirm, each year, whether a tax bill has been received by the lender and whether it has been paid, preferably during the discount period.
Homeowners who have confirmed that their lender will pay the taxes from an escrow account should send a copy of the property tax bill to the lender.
If homeowners do not have a mortgage on their homes or if the mortgage does not have an escrow account, the homeowner is responsible to pay the tax directly.
A tax bill that is not paid by Jan. 1 is considered delinquent and immediately begins to accumulate interest and penalties.
From Jan. 1 until July, delinquent taxpayers may receive one or more notices from the county clerk or the county attorney of the county in which the property is located. Neither the tax bill nor these delinquency notices should be ignored. County officials are much more likely than third party tax purchasers to work with a homeowner in their community to see that the taxes are paid and that the homeowner stays in the home.
If a homeowner is aware that taxes are due and cannot afford to pay the taxes, the homeowner should consult with the county attorney of the county in which the property is located to set up a payment plan. If, for some reason a payment plan is not feasible, the homeowner should contact their bank immediately to determine if they are eligible to have the taxes paid and added to a current mortgage or to determine if a separate loan can be made to help with the taxes. This should be done as soon as possible because the longer the tax is delinquent, the higher the add-on fees and interest accumulates.
If a homeowner cannot pay the taxes, the tax bill may be sold to a third party tax purchaser. The county clerk of the county where the property is located will post a notice of a tax sale indicating the date of the property tax bill sale. Usually these sales occur in July or August.
On the day of the sale, the property tax bill is transferred to the third party tax purchaser. As soon as the third party purchases the tax bill, the amount starts to increase – 12 percent interest is added on per annum, a $100 administrative fee is added, up to $700 in “pre-litigation” fees are added and actual attorney’s fees incurred by the third party tax purchaser are added. These fees can cause the amount owed to double, triple or increase even more.
A third party tax purchaser must send a notice to the homeowner within 50 days, notifying that the property tax has been purchased. This notice may look like a form letter or junk mail – so pay close attention.
After that notice, the homeowner will not hear from the third party tax purchaser until 45 days before foreclosure is filed. In the meantime, the third party tax purchaser can sit on the bill for up to 11 years, while it continues to add interest and fees.
For most homeowners, this is not an issue as they pay their taxes on time each year. But, even the most responsible homeowner is susceptible to the threat of a third party tax purchaser foreclosure.
Consider, for example a situation where a homeowner falls on hard times. Maybe there have been layoffs or an illness in the family. The plan is to get back on their feet and pay the delinquent taxes.
Before third parties saw the value in this scheme, delinquent taxes merely stayed on record as a lien against the property, with the amount due being collected when the property was sold. Not the case now.
Even more egregious are those who simply make a mistake. An elderly homeowner may forget or be preoccupied with the illness or death of a spouse. A new homeowner may not understand the tax system. Or, it may not be the homeowners fault at all. A home may be sold during the tax cycle, the bill may be sent to the previous homeowner, who throws it away because they no longer own the home. The new homeowner might make all future payments and still be evicted from their home.