In Texas, if you don’t pay your property tax or other taxes, you may be hit with a state tax lien. Unlike a federal lien that plays by the same rules across the country, a state tax lien differs in how it’s handled from state to state.
Texas has its own particular set of rules about when a tax lien may be placed, what can have a lien placed against it, and how a debtor can get rid of that lien.
Here is what you need to know about state tax liens in Texas.
Defining a Lien
A lien is a legal method of using a tax debtor’s property as collateral against the late tax payment. If the state places a lien against your house, for instance, you may be unable to sell that property until you have satisfied the lien and removed it.
Although Texas does not have a state income tax, you do pay taxes on other things such as personal, real estate, and business property. If you don’t pay, you receive a Notice of State Tax Lien letting you know that you owe the state some money, and in the meantime, a lien will be placed on your property, personal or business.
The lien stays there until you pay the taxes or come to an agreement. If you don’t, the state has the right to levy the property (seize it) and sell it (foreclose on it) to settle your back taxes. The most common state tax lien occurs due to unpaid property taxes.
Texas Property Taxes
Property taxes in Texas go to pay for schools, public services, roads, parks, and libraries. The amount you are required to pay is based on the assessed value of the property, as assessed by the appraisal office.
Any unpaid property tax becomes a lien against the property. If the taxes are not paid by February 1 of the following year for which the tax is imposed, they are considered delinquent. Besides becoming a lien against the property, the delinquency allows the taxing authority to begin foreclosure proceedings.
Filing and Releasing State Tax Liens in Texas
Tax Code Chapter 113 covers tax liens, including how to file and place them. It shows that “all taxes, fines, interest, and penalties due by a person to the state under this title are secured by a lien on all of the person’s property that is subject to execution.”
Read that again - ALL of the person’s property (subject to execution).
Once the state determines you have not paid your property tax, the comptroller issues and files a tax lien notice. The notice must have:
- The name and address of the taxpayer
- The type of tax owed
- Each period in which the tax is delinquent
- The amount of the tax due for each period (but not the amount of the penalty, interest, or other charges)
- Other information thought relevant and proper by the comptroller
Once the notice is filed, the county clerk records it in the state tax lien book, date stamps it, and enters into an index the name of each person the notice applies to. The county clerk then sends the comptroller a statement of the fee due for recording and indexing that lien.
To release a lien, you can pay all the taxes, interest, fees, and penalties in full. Alternatively, the state can foreclose on your house and sell it, taking the proceeds to pay for the tax liability.
Either way, a release of lien is filed with the county clerk, who then releases the lien, and may send the comptroller a fee for filing and indexing the release. These fees are passed along to the taxpayer as well.
How to Stop a Property Tax Sale
Since you are already delinquent on your taxes, and the state is trying to sell our property, you may be able to stop the sale (”cure” the delinquency) by paying off the judgment before the sale. Curing the delinquency releases the lien and stops the foreclosure process.
Redeeming a Property
Redeeming a property involves paying off the taxes due.
- If you can “redeem” your home by paying off the overdue taxes before the sale takes place, you can get the lien released and stop the sale. Payment includes all applicable interest, penalties, costs, taxes, and any other judgment amount.
- You can redeem a property after a tax sale if someone buys the house as long as you do it within two years. You pay the purchaser the amount bid, the deed recording fee, the amount they paid for taxes, penalties, interest, and costs. You also must pay a redemption premium.
- You can redeem the property if the county gets it. This means the state was unable to find a buyer for the property at the foreclosure sale. As long as the county hasn’t sold the property, you can pay the lesser of the judgment amount or the fair market value of the property (specified in the judgment), plus a deed filing fee and costs.
- If the county has resold the property, you can redeem it by paying the purchaser the amount they paid for the property, deed recording fee, and amount they paid for taxes, penalties, interest, and costs on the property. You will also need to pay a redemption premium.
As you can see, it is possible to get your property back, but it will cost you a bundle.
Avoiding a State Tax Lien
The first way, of course, is to pay your taxes. If you are unable to do so, you have a couple of options that could help you avoid a lien.
You may be qualified for a property tax abatement. Those are available to people who are 65 years old or older or to disabled veterans. In both cases, you need to occupy the property as a residence homestead.
Alternatively, you can challenge (protest) the assessed value of your home and try to reduce your taxes. You’ll need to do some legwork, and the property assessor’s office may not be very helpful, but it is one way to avoid a state tax lien.
In the current economic climate, many are feeling the pinch. Lien filings are up and investors are looking into purchasing tax deeds or foreclosed homes. It’s always a good idea to seek help as soon as you realize you may not be able to pay some or all of your taxes before a lien is filed.
Avoiding a lien also helps you keep your credit score and eases the way to get a new loan if you need one. If a lien has been placed, you can appeal it as a method of removal before it impacts your financial health.
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