How Unpaid Property Taxes Can Lead to Foreclosure

Ignoring unpaid taxes can lead to big trouble – fast

Artwork by Victoria Marcelino

Benjamin Franklin noted that “nothing [is] some, except death and taxes. But few know the combined power of these words than Richard Polonsky. The 72-year-old Bedford resident defied death by overcoming nine-hour prostate surgery and a 22-day hospital stay, but lost his home, valued at around $300,000, to of the city for a tax debt of $4,500.

“I was surprised at how tough, unforgiving and convoluted the process is,” Polonsky says. He takes responsibility for falling behind on his taxes – for three years and a total tax liability of about $17,000 (not including interest, penalties, etc.) ignored. I was mad with pain,” he says.

Such issues are all too familiar to John Tobin, a retired Concord attorney who led New Hampshire Legal Aid for many years and was involved in a landmark case to reform the process by balancing the property rights with local government pressure to collect taxes.

“It happens all the time,” he says, “and it hits older and disabled people hard in cities who have income challenges.” And, says Tobin, to add insult to injury, the tax bill is often a small fraction of the total property value.

Until 2001, it was common practice for the municipality to take all proceeds from the sale of deeded property – that which is owned by the city due to overdue taxes – regardless of or the amount due. The state Supreme Court has ruled in favor of the owner of a $65,000 property that was taken by the town of Croydon for an unpaid tax bill of $376.

The court ruled it was “unduly harsh” and a violation of the property rights section of the federal and state constitutions. The Legislature responded by creating the Alternative Tax Lien Procedure, which instituted a two-year tax lien and redemption period, followed by a transfer of ownership by tax deed to the city. During this two-year repayment period, interest on unpaid taxes accrues at the rate of 18% per annum. Even after the deed of taxation, there is a period of three years during which the former owner can redeem the property by paying all taxes, interest, costs, attorney’s fees and a penalty of 15% of the value taxable property.

The tax lien process has supplanted the archaic and abusive practice – still legal but no longer used – of allowing individuals to “buy the taxes” at the tax collector’s sale, wait for the redemption period, and then to take possession of the property at a very advantageous price. reduced price.

Without a broad-base tax, New Hampshire relies heavily on property taxes — 64% of all taxes collected come from it. And while the state, municipal, county and school coffers are filled by the source, the collector is the local municipality. “There’s a lot of inequality and pressure” for communities to vigilantly collect taxes, Tobin says. This responsibility rests with an elected or appointed local tax collector (part-time in some places).

The tax collector is responsible for billing and collecting all municipal taxes. They are also responsible for overseeing the tax lien and tax deed process. On these issues, power is exclusively statutory or “by the book”.

“Like a knot in a pipe,” says Margaret Byrnes, an attorney with the New Hampshire Municipal Association, “a default anywhere along the line will impact the municipality’s ability to perfect its lien and take the property by tax deed”.

Only the elected governing body can make the decision to take possession of a property or to cut it down or trade it arbitrarily. Until recently, some communities used to never take properties for unpaid taxes.

The problem happens slowly at first with a missed tax bill and few immediate consequences. Unlike other overdue debts, there are no harassing phone calls or letters. The practice of listing delinquent ratepayers in the city’s official report has all but ended.

When a property tax bill is unpaid, a series of legal notices (dictated exactly by state law) follow: a notice of arrears (overdue bill), a notice of impending lien (payment or lien will be placed), then the Tax Lien Report (placed bond) and finally the Lienholder’s Notice to Mortgagee (that’s it, we tell your bank). This single notice, more than any other, causes a chain reaction that exerts significant pressure and protection for the owner. And although the taxpayer has two years to repay the tax year, plus interest and fees, if the taxpayer does not pay the next year’s taxes, the process starts over for the next year’s taxes. .

With interest accumulating on both tax bills, the amount the taxpayer owes the city increases rapidly. In the meantime, the municipality gains significant leverage as municipal tax liens take precedence over mortgage liens. And most mortgages give banks the right to foreclose if the landlord fails to meet property taxes.

At this point, the lender springs into action and pressures their borrower to repay or face foreclosure. If necessary, the lender will pay taxes to protect its interest in the property. Two-thirds of all residential property owners have mortgages, and financial institutions have perfected their practices, but what about those owners, like Polonsky, who own their property freely and clearly?

Such a situation pits an individual taxpayer against the municipality. The series of notices continues and the consequences are slowly piling up, as are the costs. When the owner’s time is up, the property is repossessed by a tax deed, sometimes called a deed of collection.

For the next three years, the previous owner has the right to redeem the property paying all back taxes, interest, deed costs and, as noted above, a penalty of 15% of the value. total ownership. For Polonsky, that meant $44,187, more than double the rest of the charges.

It was a triple whammy for Polonsky. In an instant, he learned that he had simultaneously lost his property, the price to recover it had more than doubled, and he could not exploit the equity in his property.

Polonsky says he responded by making an offer to pay the balance minus the 15% assessment penalty and later, in response to a notice of sale of the property by the city, another to pay the full 94 $271, but the city refused both. This latest denial came from the city’s attorney (who opted not to be interviewed for this story) and indicated that the “redemption right has ended”, that the previous “notice was sent in error and is no longer operational” and that the “The Council will not enter into further negotiations.

Polonsky’s attorney, John Hayes, of Concord, said he was “surprised that they [the town] wouldn’t talk at all.

But ultimately, he says, “It’s a technical problem.” According to court documents, he wrote, “The process was grossly flawed… [and the town] chose to capitalize on his own inaction by unjustly enriching the city coffers with the full value of Polonsky’s house.

In the meantime, Polonsky and his wife are still in their 30-year-old family home. Since he disputes ownership, they pay Bedford $1,200 a month in rent. The case is due to be heard in June. “I just keep going,” he says.

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