Sunday, October 26, 2014

Delinquent Property Tax Rules

After reading coverage in print and online of Andre Michaud's difficulties with the Tax Collector's Office, and knowing how overwhelmingly frustrating it is to be railroaded by bureaucracy, I decided to figure out what was going on. The "he said, she said" coverage of the story in the Rep-Am did nothing to help readers decide who was right. The official report issued by the city's Corporation Council did little to clarify the matter, as it avoided answering any questions about how the delinquent tax system works.

It's taken me hours to unravel what really happens, even though this is information that should be readily available to the general public. What I discovered is that the system by which real estate property is auctioned off for delinquent taxes is shrouded in mystery and confusing legal jargon.

I had always assumed that if you failed to pay your real estate property taxes, and if the city seized the property and sold it at auction, you lost the property and no longer had to pay the delinquent taxes. The truth is that you lose your property and still owe the difference between the sale price and the total taxes owed. In other words, if you have $30,000 in back taxes owed on a property, and the city sells the property at tax auction for $10,000, you still owe $20,000 in taxes.

A quick glance at a sampling of tax auction sales suggests that most of the delinquent properties are being sold for less than what is owed in back taxes on them. My understanding of the law (but I'm not an attorney, so don't quote me!) is that the delinquent taxes remaining after auction can be forcibly collected only through a lawsuit, or through other legal means such as booting your car if you owe taxes on it.

If you owe the city back taxes for a property that was sold at tax auction, the city can sue you and get a court order to garnish your wages or seize your bank account. Bear in mind, however, that unless there is a court order, the city can't just take money out of your bank account without your permission. They can report your delinquent debt to the credit rating agencies, lowering your credit score. In other words, delinquent taxes owed post-auction are the same as any other debt owed to a corporation.

Some municipalities have a clearly written policy for delinquent taxes readily available on their websites (for example, Manchester, East Hartford,  and Norwalk). It would be helpful if there was one for Waterbury.

If you want to spend hours delving into Connecticut property tax laws, start with the website of the Connecticut Tax Collectors Association.

Now for the rules. These rules are taken from Chapter 204, Section 12 of the Connecticut State Statutes and are "translated" from barely decipherable legal speak to layman's language. Waterbury's ordinance regarding delinquent taxes adheres closely to the state statute.

1. Taxes are due by a set date every year. If you don't pay your taxes on time, interest of 1.5% will accrue monthly.

2. Unpaid real estate taxes are subject to an interest rate of 18% per year on the delinquent principal. Interest will continue to accrue from the date is was due, until the date on which it is paid. The Tax Collector can round up any part of a month to a full month's worth of interest.

3. Partial payments are applied to reducing the interest owed, not to the delinquent principal. The principal owed is reduced only if the interest is paid off. It gets more complicated if you are delinquent on multiple properties.

4. Businesses can lose their license or permit if they are delinquent on their taxes for more than one year.

5. The city can withhold any payments due to a business if that business is delinquent for more than one year on its property taxes; the amount of payment withheld can not be larger than the amount owed by the business. This rule applies only to a business enterprise, not to the individual person who owns the business.

6. This next rule is from 2003 and is oddly temporary, but apparently is still on the books. If you or your spouse are in the military serving active duty in Iraq, you are exempt from being charged interest on delinquent property taxes.

7. If you do not pay your taxes on time, the Tax Collector "shall make personal demand of such person therefor or leave written demand at such person's usual place of abode" or send a notice in the mail. There's also a few mentions of posting information on the town sign post, even though that's really antiquated.

8. If a corporation or LLC or other legal entity is delinquent on their taxes, the Tax Collector can send the written demand for payment to the person who officially represents that business ("upon whom process may be served to initiate a civil action against such corporation").

9. After demand for payment of past due taxes has been made, the Tax Collector can place a lien against the property.

10. The Tax Collector can sell the property for unpaid taxes. The person who owes the delinquent taxes is not allowed to purchase the property from the Tax Collector.

11. The delinquent property owner will be sent a notice, at least twice, of the pending sale of his or her property by certified mail, return receipt requested. That notice will include the amount of taxes owed, as well as all the various fees involved. Notice will be sent between nine to twelve weeks before the sale is scheduled. Notice will also be posted in the local newspaper at least once a week for three weeks.

12. The Tax Collector can sell the property at auction to the highest bidder to pay the taxes, as well as the interest, fees, and other charges allowed by law.

13. The Tax Collector can sell the property to the city if there has been no bidder or if the bid amount is less than the amount due.

14. The Tax Collector shall post a written notice of the amount due on the property at the auction.

15. If the city hires an auctioneer to run the auction, the cost is shared equally by all the properties being sold.

16. The Tax Collector shall issue a deed to the purchaser or the city within two weeks of the auction. The deed shall remain unrecorded for six months, allowing the original owner time to redeem the property by paying the delinquent taxes and fees.

17. The original owner will be sent notification of the amount they need to pay, and the date by which it must be paid, if they want to reclaim their property after the tax auction.

18. If the original owner does not redeem the property in time, the person who bought the property at the tax auction becomes the legal owner.

19. The property can be redeemed by someone other than the original owner and other than the person who bought the property at auction, provided that person has a legal interest in the property.

If the property was abandoned (or for other reasons as outlined in the City Ordinances, Chapter 32, Section 24) and was sold for less than the total amount owed at the auction, anyone with an interest in the property other than the original owner has 60 days from the date of the auction to redeem the property for the full amount owed.

If the property was not abandoned, anyone with an interest in the property other than the original owner has six months from the date of the tax auction to redeem the property for the full amount owed.

The person who pays off the full amount owed will then have a legal claim against the person who was responsible for paying the taxes. The person who bought the property at the tax auction will be notified and reimbursed within ten days.

20. The city will insure the property against fire and other loss during the redemption period. The person who bought the property at the tax auction is not liable for the property during the redemption period.

21. If the property sells at auction for more than what is owed on it, the excess amount shall be placed in an interest-bearing escrow account. If the property is redeemed, the amount held in escrow shall be returned to the person who tried to buy the property at the auction; the interest accrued shall remain with the city.

If the property is not redeemed, the amount held in escrow may be used to pay other delinquent taxes owed by the original property owner. The details of this are complicated and involve the Appellate Court. Since this scenario is unlikely to happen anytime soon, I'm going to skip it.

22. All taxes owed are a legal debt that must be paid. The city may pursue the payment of that debt by any legal means, which means suing the delinquent taxpayer. The results of the lawsuit can include garnishing wages and seizing bank accounts, but these actions must be court approved.

23. The city can attempt to collect the taxes owed through levy and sale, enforcement of a lien, or any other legal proceeding (i.e., the city can sue for the taxes to be paid). The delinquent taxpayer has to pay all the related costs incurred by the city in its efforts to collect the debt.

24. The Tax Collector can serve a warrant for the collection of any tax assessed.

25. The city can petition the Superior Court to place a rental property into receivership. The appointed receiver shall collect the rent payments and use them to pay the delinquent taxes, and then any utilities that would normally be paid by the rent payments. The receivership ends when the delinquent taxes are paid.

26. The Tax Collector has 15 years in which to collect delinquent taxes; after 15 years, the delinquent tax is expired and can't be collected by the city. Improvement liens are exempt from this limitation.


While I believe firmly in paying taxes on time, and I know how important the tax revenue is for the city, I also know that sometimes people make mistakes, and sometimes people are lose their jobs and aren't able to keep up with all their bills.

Over the years, I've known a few people who have fallen behind on the property taxes for their homes. Usually these are older homeowners who are going through difficult financial problems and don't have enough money to make ends meet. In these instances, they were able to resolve the problem by going to the Tax Collector's Office, explaining the situation, and agreeing to a payment plan. However, it is usually an extremely stressful process, since the Tax Collector's Office continues to send warning notices and threatens to take their homes for tax auction, which would leave them homeless.

The Tax Collector's Office shouldn't be too quick to seize properties. If a property is owner occupied, it's better to work out a payment plan than to take someone's home away from them.

If a property is a rental unit, the city is more likely to see the back taxes paid if the owner still has a source of revenue from the property. The law allows the city to place a rental property into receivership, using the rent to pay the taxes (see Rule #25 above); this seems like the best solution if a landlord is delinquent on property taxes.


Unknown said...

Hi I owe back taxes is there any program of is there any way I can get help in terms of getting a payment to plan for my taxes

Waterbury Girl said...

You might be able to set up a payment plan. Try calling them at (203) 574-6810.