Tax titless arise out of the non-payment of taxes, assessments, or other public charges by the real property owner resulting in a forfeiture of title by all who have an interest in that property. Although this is a general description applicable to most jurisdictions, the actual laws and timing requirements of each jurisdiction will be different based upon specific state statutes and local ordinances. Guidance from local underwriting counsel must always be sought when faced with tax sales.
In a tax sale, title is most often conveyed by an administrative tax deed. Generally, when taxes on land are not paid, the tax collector may sell either the land or a tax certificate on such land at public auction. A tax sale certificate is then issued to the successful bidder who pays the unpaid taxes and requisite interest, costs, and related charges. If there is no buyer, the certificate is issued to the county. After the statutory period of time has elapsed – e.g., two years – following the year of issuance of the tax sale certificate, the owner of the certificate is entitled to apply to the tax collector for a tax deed if the owner of the land has not paid the tax certificate holder or the county the redemption amount of the taxes, interest, penalties, and charges from the tax sale.
Upon notice of sale being properly published and sent to the owner and any lienholders or mortgagees of record, the land is sold at public auction. At that time, the owner of the tax sale certificate may bid in the amount required to redeem the tax certificate plus other related costs, and a tax deed will then be issued to the purchaser. In other jurisdictions the action may actually be one to foreclose upon the tax certificate or one to foreclose the equity of redemption. In any case the result is the same and that is to divest the owner of the property. In some jurisdictions, if the owner has not redeemed the property from the original tax sale by within the prescribed time period the tax deed may be issued by the tax assessing office or clerk of court and the issuance of the tax deed will divest the former owner of all title to the land and constitutes a new and independent source of title.
A tax sale will not only divest the non-paying owner of the land but all who have an interest in the property, be they mortgagee, judgment creditor, remainderman, lessee, or co-tenant. Easements, rights of ways, covenants, conditions, and restrictions will typically survive a tax sale and will continue to burden the property. One must also keep in mind that an owner of a tax certificate or a tax sale purchaser may also be divested at a subsequent tax sale for failing to pay real estate taxes, assessments, or other public charges. Another matter to keep in mind is that in most jurisdictions a co-tenant will not be able to acquire exclusive title to property as against his co-tenants by virtue of successful bid at a tax sale. A payment made by one co-tenant will ordinarily be for the benefit of all co-tenants or joint owners.