Property-Tax Defaults: The Other Claremont Foreclosure

Most people picture the same thing when they hear the word foreclosure: a lender, a missed mortgage payment, a trustee's sale. That is one road to losing a home in California. It is not the only one.

Unpaid property taxes run on an entirely separate track, administered by the county rather than by a lender, and it ends in a different kind of sale. Owners who have paid off their mortgages sometimes assume they are past all of this. They are not.

Two systems, side by side

A mortgage foreclosure enforces a private contract. The lender's remedy comes from the deed of trust the borrower signed, and in California it usually proceeds without a court as a sequence of recorded stages. If that is the situation you are in, the nonjudicial process is described here.

A tax default is a public obligation. Property taxes attach to the property itself. When they go unpaid, the county records the default and the parcel enters a status that carries penalties and interest, accruing until the amount is paid or the property is eventually offered at a county tax sale.

The important structural point: these are independent. Being current on the mortgage does not protect against a tax default, and being current on taxes does not protect against a mortgage foreclosure.

Why owners fall behind on taxes without meaning to

The most common cause is the disappearance of an impound account.

While a mortgage is in place, many owners never pay taxes directly. The servicer collects a share each month and pays the county on the owner's behalf. When the loan is paid off, refinanced, or transferred, that arrangement ends — and the owner becomes responsible for a large payment on a schedule they may never have tracked.

Other patterns show up repeatedly. An inherited property where the bills go to an old address. A rental managed at a distance. A reassessment after a change in ownership that produces a supplemental bill the owner did not expect. An owner in declining health who stopped opening mail.

Almost none of these are refusals to pay. They are administrative failures, and they are fixable if caught.

The sequence, in general terms

California's system runs in stages. Taxes become delinquent after their due dates and penalties attach. The parcel is then declared tax-defaulted, and interest accrues on the defaulted amount. After a period defined by statute — measured in years for residential property, and long enough that no owner should ever be surprised — the tax collector may offer the property at a public auction.

The specific periods, penalty rates and notice requirements are set by the California Revenue and Taxation Code and change over time. Verify current law and confirm the details with the Los Angeles County Treasurer and Tax Collector rather than relying on any article, including this one.

What matters practically is that the owner keeps the right to redeem the property by paying what is owed until quite late in the process, and that the amount grows the longer it sits.

The relief that exists

Counties generally offer installment plans that allow a defaulted balance to be paid over time while the property stays out of the auction pipeline, provided the current year's taxes are also kept up. That is the single most useful thing to ask about, and it is asked about directly at the tax collector's office — not through a third party.

California also administers relief programs for eligible homeowners, including postponement programs aimed at seniors and owners with disabilities. Eligibility rules change, so ask the State Controller's Office or the county directly about what is currently available.

NO ONE SHOULD PAY AN UPFRONT FEE TO A COMPANY OFFERING TO FIX A TAX DEFAULT. County payment plans are available to owners without an intermediary, and defaulted parcels are public record, which means solicitations follow. The patterns are the same ones described in the article on foreclosure scams.

If both problems exist at once

A tax default and a mortgage default frequently arrive together, because both are symptoms of the same interrupted cash flow.

Start with a HUD-approved housing counselor. Counseling from a HUD-approved agency is free, and a counselor can help sort out which obligation is most urgent and what the realistic paths are.

Then get real numbers: the tax amount owed from the county, and the reinstatement and payoff figures from the mortgage servicer. If the home carries equity, the options widen considerably, and selling before any sale date is often the route that preserves the most value. Taxes owed are simply paid from proceeds at closing, the same as any other lien.

For buyers looking at tax sales

County tax auctions attract investors, and they deserve the same clear-eyed treatment as any distressed purchase.

Bidding is typically cash on a short timetable, with no interior access, no disclosures and no inspection. Some liens survive a tax sale and some do not, and working out which is a title question, not a guess. Occupancy is a real possibility, and dealing with it is a legal process with its own requirements.

Anyone considering it should read what can go wrong with title on a foreclosed property first, and should understand that a person's loss is not a bargain to be exploited. It is a transaction to be handled with care and with counsel.

The one habit that prevents all of this

Check the parcel's tax status once a year. The county publishes it, it takes minutes, and it catches the impound-account gap, the wrong mailing address and the unexpected supplemental bill before any of them turn into a default.

For the wider picture, start at the foreclosures guide. Legal questions belong with an attorney and tax questions with a CPA. Anthony Grynchal has been licensed in California since November 2009.