Ways to Prevent Foreclosure on a Tax Deed

Tax Sale

In some states, the taxing jurisdiction sells a tax-lien certificate that gives the holder the right to pay the back taxes due in exchange for a tax deed. The process varies by state. Generally speaking, however, the jurisdiction is required to serve notice to everyone who owns interest in the property or holds title to it that a tax sale is pending. If the sale proceeds, the jurisdiction issues a tax deed to the tax-lien certificate holder in exchange for the tax payment. In states where tax certificates are not sold, such as Idaho, the taxing jurisdiction takes the tax deed and sells the property through a public auction after notice has been served.

Defending Against Foreclosure

According to the North Carolina law practice of Ruff, Bond, Cobb, Wade & Bethune, the only legal defense against a tax foreclosure is in cases where the tax is illegal or is imposed because of a clerical error or for an illegal purpose. The process doesn't seek to allow the property owner the opportunity to prepare a defense. Rather, the process serves to notify the owner and other interested parties that their ownership interests will terminate upon completion of the sale.

Redemption Period

The interested parties -- usually the property owners or the mortgage lender -- have a window of opportunity to prevent foreclosure by repaying the tax, interest and fees. This "redemption period" takes place between the time notice is served of the pending tax sale, whether through certificate or auction, and a pre-specified due date prior to the sale.

Bankruptcy

Bankruptcy halts most collection activities. Foreclosure is considered a collection activity, so a homeowner facing tax foreclosure and sale may be able to stop the actions by filing for bankruptcy and claiming the property as exempt -- not subject to seizure. According to the Johnston County, North Carolina, Tax Collector's Office, however, the overdue tax and fees and interest associated with the tax or the foreclosure proceedings to that point must be paid as a priority claim. The homeowner must notify the tax collector of the bankruptcy so that the automatic stay mandated by federal law can be invoked. If the bankruptcy isn't granted, or if it's discharged or dismissed, the collection activities may resume.