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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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I have a rental property that I cant get all taxes paid up.

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I have a rental property that I can't get all taxes paid up. How much can I be in arrears so that that balance can be paid off during time of sale (when I sell it not tax sale)? I thought the amount was $10,000 and aside from interest the county can't issue a tax sale. Or is it that end of tax year all amount in arrears can not be more than 1 year old? Also, what are implications on my credit if I do this, if any?
Submitted: 10 months ago.
Category: Tax
Expert:  jgordosea replied 10 months ago.

Greetings,

 

Each state has different laws for how delinquent tax sales and liens are done.

 

From http://www.nj.gov/dca/divisions/dlgs/programs/tax_collector_docs/elements_of_tax_sales_nj.pdf

"New Jersey law requires all 566 municipalities to hold at least one tax sale per year, if the municipality has delinquent property taxes and/or municipal charges. You can obtain information on upcoming tax sales by contacting the tax collector in the municipality in question, or from the web site of the Tax Collectors & Treasurers Association of New Jersey: www.tctanj.org/taxsale.html. More detailed information on the tax sale process in New Jersey can be found at www.njtaxlieninvestor.com

In New Jersey, property taxes are a continuous lien on the real estate. Property taxes are due in four installments during the year: February 1, May 1, August 1, and November 1. Delinquency on a property may accrue interest at up to 8 per cent for the first $1,500 due, and 18 per cent for any amount over $1,500. If the amount of delinquency on a property exceeds $10,000 at the end of the municipal fiscal year, the municipality may charge up to a 6 per cent year penalty.

 

At the tax sale, title to the delinquent property itself is not sold.

What is sold is a tax sale certificate, a lien on the property."

So it is not that a sale does not happen unless the balance is $10,000 but that a penalty can be applied on that amount of tax due. The sale can happen after one year (though it is not clear if the locality has a choice of exactly when, to me).

What all happens to your credit is somewhat beyond my expertise, but the lien does have to be recorded by the purchaser. Whether or not, and when, that will be reported to the credit agencies is not clear. The lien is on the property and not on all of your other property like an income tax lien. That means it may not have much impact or may not even get on your individual credit report.

From http://www.millville.org/counties/cumberland/0610/city/depts/revenue/tax_sale.html

"Redeeming Tax Sale Certificates
Redemption:
Once a lien has been placed on a parcel, the only persons able to redeem that lien are the owner, his/her heirs, the holder or a prior outstanding tax lien certificate, mortgage, or legal occupant of property sold at a tax sale; and may only redeem until the right to redeem has been cut off.

Payment to redeem a lien must be made in full by cash or certified funds, to the tax collector's office. Once the redemption has occurred; the tax collector will notify the lien holder of payment. They will return the original certificate back to the collector endorsed for cancellation. Upon receipt of the cancelled certificate, the redemption funds will be released to the lien holder.

When the collector receives this cancelled certificate they will send it to the party that redeemed the lien. It is their responsibility to have this lien removed from the property at the county office.

Un-redeemed Liens:
If a lien that has been sold to outside bidder is not redeemed within 2 years from the date of sale, that bidder now has the right to begin foreclosure proceedings.

If a lien that has been struck off to the municipality is not paid, the municipality has the right to an In Rem Foreclosure 6 months after the date of sale."

The best source of more detailed information is the county or city tax collector of the location of the rental property. They can tell you more precisely when in the year each part of the process occurs.

Please ask if you need more discussion or clarification.

Thank you.

Customer: replied 10 months ago.

Ok but Im unclear if I can carry a tax balance and of how much and wht the risks are? I would like to carry the balance, keep paying taxes in arrears but carry the balance so it can be resolved at time of sale.

Expert:  jgordosea replied 10 months ago.

Hello again,

 

If you do not pay your taxes each year the tax collector can sell a tax lien on the property, for any balance.

If you do not pay the lien within two years the holder of the lien can begin foreclosure proceedings.

If the balance is more than $10,000 a six percent penalty in addition to interest can apply.

 

So you can stay one year behind; but for the amount involved this seems to be little reward for much risk, in my opinion. Of course, you choose your own risk.

 

Hope that clarifies for you.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3004
Experience: I've prepared all types of taxes since 1987.
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