Delinquent Taxes
Property taxes that remain unpaid past the due date, which may result in penalties, interest, and eventually a tax lien being placed on the property.
Delinquent taxes are property taxes that have not been paid by the designated due date. When a property owner fails to pay their property taxes on time, the unpaid amount is classified as delinquent, and the local government begins adding penalties and interest to the balance. This delinquency is the foundation of the entire tax lien and tax deed investment industry.
The process that follows tax delinquency varies by state but generally follows a predictable pattern. First, the property owner receives notices and incurs late penalties. After a specified period of continued non-payment, the taxing authority places a lien on the property. The government may then sell this lien to investors through a tax lien certificate sale, or, in tax deed states, may proceed to sell the property itself to recover the unpaid taxes.
The reasons for tax delinquency are varied. Some owners face genuine financial hardship, while others may have inherited properties they don't want, live out of state and lost track of obligations, or simply neglect their responsibilities. Understanding the likely reason for delinquency can help investors assess the probability of redemption and the overall quality of the investment.
For investors, delinquent taxes create the opportunity to earn above-market returns secured by real property. The key to success is identifying properties where the delinquency represents a recoverable situation — properties with substantial equity, in decent condition, and in areas with stable or growing values. Properties with delinquent taxes in distressed markets or with significant structural issues present higher risks and require more careful evaluation.