Usually, when a homeowner in Canada defaults on their property taxes, the government takes up the property and puts it on sale to other interested citizens- tax sale. However, every state in Canada has its unique rules and regulations regarding tax sales which must be followed by people living in a particular state. In most states, tax sales follow a specific process which this blog will outline for you.
Canada has two types of tax sales: tax deeds and tax lien sales. The former refers to a situation where the government sells the entire property at a public auction, including its unpaid taxes.
On the contrary, a tax lien sale is when the property is auctioned off to the greatest bidder, granting them the right to demand interests and lien collection from the home or its previous owner.
As highlighted earlier, tax sales take a gradual procedure, not spontaneously as many would think. It involves a series of steps, running from:
1. Tax Defaulting
The first step of initiating a tax sale is when a property owner fails to honour their taxes regarding the property for a stipulated period. The Canadian government or its county municipals cannot conduct a tax sale on a property whose owner has paid all the relevant taxes and has no related debts.
However, the government doesn’t just initiate the process without the homeowner’s knowledge or participation. After a homeowner is marked as a tax defaulter for his property, the government, through the municipality, notifies them about the outstanding delinquent taxes and possible interests and waivers.
The notice will also be accompanied by a letter of a potential tax sale which serves as a warning that the homeowner might lose the property if they fail to pay the outstanding tax debt. The government allows property owners a given period to pay the taxes, after which the tax sale process begins if they fail.
2. Initiation of the Tax Sale
Once the grace period for paying the delinquent taxes lapses, the municipality begins the tax sale process by first offering a notification to the property owner and any other relevant parties. The notice clearly states the date and location of the tax sale, assuming that the property owner already knows the reason behind the proceedings.
Some municipalities can accept payments of delinquent taxes made by the property owner at this stage, while others do not. If the homeowner still doesn’t pay the taxes, the tax sale proceeds to the next steps.
3. Advertisement of the Tax Sale to the Public
When the property owner fails to pay their delinquent taxes on the home after the above notice, the Canadian government continues the tax sale by advertising it to the public.
The most popular means of advertisement of tax sales are through various online platforms, printed notices at the municipal offices, government websites, around the property under tax sale, and the local newspaper. The publications usually describe the property under tax sales, such as location and the specific date.
4. Registration of Bidders
Having seen the public notices (adverts) regarding an upcoming tax sale, interested buyers must register as bidders at the municipal offices within a given period. The government might include any potential buyer visiting the office or websites past the stated date in the bidders’ list.
When the bidding date is due, the bidders are assembled. In most counties, bids usually start at the home’s initial cost, amount of delinquent taxes, or other rates depending on various factors. The winner, who is the highest bidder, takes the property and is often required to pay at least 70% of the total amount immediately.
Some counties demand cash payments for tax sale properties, while others allow several forms of payment. Additionally, whenever the property sells significantly higher than the outstanding delinquent taxes, some counties may refund some finances to the previous owner and other relevant persons. In contrast, others may hold it to be used on various government projects.
5. Transfer of Ownership
Now that the highest bidder has wholly or substantially paid for the property, the government commences the transfer of ownership. The owner gets a new tax deed in their official name and other personal details, confirming the ownership and the date of the agreement.
It would be advisable for the new homeowners to engage a reputable lawyer during the deed issuance period to ensure everything has been performed legally. Moving single-handedly can be risky as sometimes individuals might not understand all the drawbacks and benefits of a tax sale.
While purchasing homes under tax sales is considered a money-saving opportunity, individuals must be cautious to avoid toppling into the negative side. As an interested buyer, you should research the property extensively before settling for it. Above all, ensure to engage a financial advisor for more excellent outcomes.