Unpaid property tax debts are leading to preventable foreclosures, with the greatest impacts on Black and Latino households and older homeowners living on fixed incomes. But if states take proactive measures to reform policies and disclosures around tax foreclosures, this could go a long way to prevent unnecessary home displacements.
This is according to a jointly issued brief published this week by the National Consumer Law Center (NCLC), the American Land Title Association (ALTA) and AARP.
“States must enact laws that protect those most at risk of losing their homes to tax foreclosure, particularly lower-income homeowners and those aged 65 or older,” Andrea Bopp Stark, a senior attorney at NCLC, said in a statement. “States should actively promote available tax relief programs that include prepayment and repayment plans, affordable interest rates and limited penalties on past due taxes and reasonable time periods and terms to redeem the property.”
The coalition of trade groups makes several recommendations around seven core issues at the state level. These include requiring “clear, meaningful” notice at each stage of the tax foreclosure process; ensuring both owners and inheritors of ownership receive notice of foreclosure stages; creating alternatives to tax-initiated sales; and making redemption costs both “affordable and accessible.”
The groups also recommend protecting older adults and low-income homeowners who “struggle to pay property taxes” to prevent the root causes of foreclosure; improving and creating new property tax exemptions; and requiring “market-driven tax foreclosure processes for owner-occupied/involved residential properties if there is a tax sale.”
“Homeownership sustainability is a key part of wealth creation and preservation,” said Elizabeth Blosser, vice president of government affairs at ALTA. “Good public policy should promote preventative measures to avoid the loss of property to tax foreclosure sales. This is a critical component of housing opportunity and long-term affordability.”
Seniors on fixed incomes can be particularly vulnerable to tax foreclosures, particularly as property taxes have risen considerably in recent years.
Improving disclosures and consistently communicating with the property owner at each stage of the process can be critical in avoiding an unnecessary foreclosure, the groups said. The amount owed in taxes often pales in comparison to the value of a foreclosed property, according to Jenn Jones, vice president of financial security and livable communities at AARP.
“States must ensure that the tax foreclosure process leaves the consumer who lost their home in the best position to recover financially,” Jones said. “Property tax debts are often well below the value of a home, and many foreclosed homes sell for more than 10 times the amount owed in unpaid taxes. And in some states, homeowners do not receive any of the proceeds from the sale. AARP is working in statehouses across the country to ensure this money is rightfully returned to homeowners.”
In the brief, the groups also cite a 2023 U.S. Supreme Court decision as a reason for revising existing rules.
“In 2023, the U.S. Supreme Court ruled in Tyler v. Hennepin County that it is unconstitutional for a local government to take a property in a tax foreclosure and keep the equity after the tax debt and costs are paid,” the joint brief explained.
“Many states will now need to take a close look at their tax foreclosure laws to make sure that they are aligned with the precedent set by Tyler. As they do, they should revise the laws to protect property owners from unnecessary tax foreclosures and preserve the equity in their homes.”
