Property taxes are something that everyone who owns real estate must pay. In Maricopa County, your tax bill is printed and sent out in September with two payment coupons to cover the first half of the year, and the second half of the year. You have the choice of paying this in full all at once, or in two payments.
Taxes for January through June (6 months) are due on October 1st of that same year and are considered delinquent after 5PM on November 1st or 5PM on the next business day after November 1st to account for weekends and holidays. Taxes for July through December of the current year are due on March 1st and becomes delinquent on May 1st at 5pm. There’s a longer grace period on the 2nd half due to Income Tax season.
For most of you, paying your taxes isn’t a concern until you own your home free and clear because your lender has what’s called an “impound account” that handles your property taxes for you. That’s right, every mortgage payment you make contains one twelfth of your annual tax bill which goes into an account at the bank. The same rings true for insurance. Twice per year, your lender will pay your taxes for you out of those funds.
(Note: if there are funds in that account at the time you sell your home, that money will be refunded to you, eventually.)
Why do lenders do this? Because property taxes take first priority over all other liens on your house, the results of which are explained below.
So, the question, What Happens if I don’t Pay My Property Tax is answered as follows:
If you don’t pay on time, state law mandates that you are assessed a 16% annual interest rate on the balance. Ouch. If after 16 months, you fail to make good on the past due balance, you will be billed a 5% advertising fee, or $5.00 (whichever is greater) and the count assessor will offer your lien for sale to the highest bidder. Bidders bid on the interest rate, and the rate is bid down.
Let’s say, for example, you owe the state $5,000 in property taxes and you fail to pay. In the 16th month of delinquency, I can bid on a lien from the Treasurer for $5,000 + whatever fees are already tacked on and receive from you, the owner, a rate of 16% on my money. Someone else, however, may bring $5,000 to the table and be willing to accept 12%, or 10%, and so on, until I have a place where I can invest my money.
Why would I do that? Firstly, I will make a rate of return on my money, but here’s where it gets REALLY interesting. If, after three years, you fail to get current, I as the tax lien holder, who is automatically in first position, have the right to foreclose on your home. That means that for $5,000, I’m probably picking up a house with a market value somewhere in the half-million-dollar range. That’s a great return on your investment, but it’s also VERY rare.
So, ultimately, if you don’t pay your property taxes, you could lose your house. So, pay your taxes.