What Is A Tax Deed Sale And How Is A Condominium/ Homeowners Association Impacted By This Process?

As involving real property, if one fails to pay their property taxes by March 31, 2021, a tax certificate will be auctioned by the County Tax Collector. Tax certificates are auctioned off in an “interest rate bid down” procedure. The tax certificate will be awarded to the person/entity willing to pay the property taxes and accept the lowest interest rate return on the to be issued tax certificate, sometimes euphemistically referred to as a “tax lien”. The recipient of the tax certificate can then make a “tax deed application” two years after the issuance of the tax certificate, but no greater than seven years thereafter. Upon making a tax deed application, a tax deed sale is scheduled, like a mortgage foreclosure sale, where the high bidder receives an administrative tax deed for the property. When the property is encumbered by a mortgage, typically the mortgage holder, i.e., Bank will ensure the property taxes are paid prior to the property being scheduled for a tax deed sale in order to preserve their collateral. However, in certain instances, intentionally or unintentionally, mortgage holders will fail to pay the property taxes. If a tax deed sale occurs, any existing mortgages on the property are extinguished as are unfortunately all amounts due a homeowners or condominium association up to the time of the issuance of the administrative “tax deed”. If the tax deed sale generates a bid price which exceeds the delinquent property taxes, then surplus tax deed sale proceeds exist. These “surplus tax deed sale proceeds” are to be distributed to those lien holders, like a community association. Surplus proceeds can be used by the condominium/homeowners association to offset some or all of any delinquent assessments involving the property. Critical to this process is the timely filing of a statement of claim with the Clerk of Court to ensure a community association’s possible entitlement to some or all of the tax deed sale surplus proceeds. The tax deed sales process has major implications on homeowners and condominium associations both negatively and positively in terms of (i) the extinguishment of prior amounts due the community association but (ii) potentially enabling the community association to recover monies through the tax deed sale surplus proceeds process.