In some states, delinquent property taxes are collected through the sale of the deed, meaning the municipal taxing entity sells the deed, home and all, to the highest bidder to collect back taxes. Other states place a lien on the home and, after a legally prescribed period, sell the lien at a tax lien sale. Some states permit both forms of tax collection. Missouri is a tax lien sale state, with the exception of St. Louis.
Tax Lien Sales
Should a homeowner become more than one year delinquent paying property taxes, counties in Missouri may place a lien on the property and then sell the lien to satisfy the tax debt. Some counties, like St. Louis County, will lien the property after one year of delinquency, according to county deputy tax collector Tom Vollmer. Many other counties, like St. Charles County, will allow a property owner two years or more before moving to lien sale. A lien is placed on the title or deed to the property for the amount of delinquent taxes plus penalties and fees and sold at auction. If the home is financed through a lender and the full amount of the loan has not been paid off, the lender will usually pay the back taxes to avoid the lien sale and then either move to foreclose on the property (if the borrower is delinquent in loan payments, too) or work out a financial arrangement with the owner.
If a homeowner has satisfied the mortgage and holds the property outright, he is solely responsible for the taxes. If the taxes are not paid within a legally specified time, the county may lien the property and sell the lien on the open market to the highest bidder. (The starting bid is usually required to be twice the outstanding tax amount plus fees but that varies with the county). Investors will often purchase the tax lien and are owed 10 percent annually by the homeowner on the amount paid for the lien.
Backdoor Tax Deed Sale
If the investor has not been paid and the lien satisfied within two years, the investor has an opportunity to take the property. The investor must notify all other lienholders (if there are any) and interested parties to the property (including the property owner). If no other liens exist, the investor is given a conditional deed by the county and then must seek "quiet title" to the property in court. The city of St. Louis aside, the investor would then receive ownership of the property. The original owner has one additional year to redeem his tax debt. This means, to an investor and homeowner, that the process will take three years total before it is completed either with the homeowner keeping his property or the investor taking it, if the lien has not been satisfied. It's not a conventional deed sale like in other states, i.e., it's a backdoor deed sale that occurs only as a byproduct of a tax lien sale and rarely occurs in Missouri, according to tax officials..
City of St. Louis
The City of St. Louis is its own county (not part of St. Louis County) and operates under a different law that applies only to it. St. The city allows taxes to become delinquent for three years before it will go to tax deed sale. According to Deputy Tax Collector Tim Lee, in 60 percent of the cases the homes are still mortgaged but the borrower has not established an escrow account or has stopped paying escrow in violation of the loan requirement and the lender will usually step in to pay the taxes. In turn, the lender will either move to foreclose on the property or will negotiate a new financial arrangement with the borrower. The remaining 40 percent are properties that have no mortgage and are owned outright by the property owner who has fallen behind on taxes. In those instances, the property will go to a tax deed sale.
No Investors Invited
According to Lee, the property will be sold to the city's Land Revitalization Authority for the amount of outstanding taxes, penalties and fees. The city tax rolls are made whole and the Revitalization Authority takes possession of the property, fixes it up if necessary, and sells it on the free market as part of a citywide urban revitalization effort. There is no room in the process for public bids on the property, Lee said. The property owner still has one additional year to redeem his tax debt, including penalties and fees, before the LRA can make improvements and resell the property. In effect, a property owner in the city can fall behind on taxes for up to four years before he loses the property. Investors may purchase the property only after the LRA has put it up for sale at market rates.
Chuck Ayers began writing professionally in 1982, breathing life into obituaries, becoming a political and investigative reporter at a major East Coast metropolitan newspaper. He now freelances and is a California communications and political consultant. He graduated from American University, Washington, D.C., with degrees in political science and economics.