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Tax lien sales hit retirees hard

By Jennie L. Phipps ·
Tuesday, July 10, 2012
Posted: 12 pm ET

If you don't pay your taxes -- even if it is a small amount -- you can lose your home to tax sale.

State laws that permit local governments to sell property through a tax lien foreclosure process if the owner falls as little as $400 behind on property taxes are affecting thousands of people living in retirement, according to a report from the National Consumer Law Center. The report points out that a tax sale can be triggered by a small tax lien. All it takes to buy the property at a tax lien sale is enough to pay those back taxes. Usually, the homeowner has the first opportunity to buy the property back, but if the homeowner fails to do that, a speculator can leap in and purchase the home for very little. Staff attorney and report author John Rao says a $200,000 home might be sold for as little as $1,200 and then resold for a huge profit.

Rao says homeowners especially at risk are those with cognitive disorders such as Alzheimer's, but anybody who doesn't understand the arcane language of tax liens can be a victim. In Delaware, much of the notice is in Latin, Rao says, because the state still uses the legal forms from a couple of hundred years ago.

The National Consumer Law Center is urging states to make it easier for consumers to understand the tax lien process and harder for speculators to take advantage of it. But these kinds of legal changes take years. In the meantime, if you are a homeowner, there are two retirement planning steps you can take to make sure your taxes are paid on time.

  • Use an escrow account. If you have a mortgage -- a regular one or a reverse mortgage -- but no escrow account, ask your lender to set one up. That way, the bank should be paying the taxes.
  • Add an additional name to your tax accounts. Most taxing entities will send notices to more than one address. Having a tax notice sent to your adult child or your accountant, for instance, could be protection.
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