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Those with subprime mortgages affected by tax lien sales

The struggles of many homeowners here in Chicago to meet monthly mortgage payments are well-documented. But foreclosure is not the only worry. Financial pressures are also making it harder for some people throughout the country to meet their property tax obligations, meaning that their homes could be sold after the government attaches a tax lien to their property.

A lien is a legal instrument that gives a creditor an interest in a debtor's property. If homeowners sell their property subject to a tax lien, the government can collect the taxes owed from the sale proceeds. But the government does not have to wait for that to happen. Tax liens give it the ability to seize the property and sell it to recoup the back taxes. Of course, the lien can be satisfied if the homeowners get current on their tax obligations, which can be more difficult in practice than in theory.

The government also can sell the lien to a third party, conferring on it the right to seize and sell the home. At this stage, homeowners can reclaim the home by paying off the amount of the lien plus certain costs and fees, which can be burdensome. Failing that, the lien holder will typically sell the home, taking a large profit.

Losing one's home and its accumulated equity can be devastating to a person's finances. One of the potential pitfalls for homeowners is the low amount of back taxes that can trigger this process. The National Consumer Law Center has released a report showing that some statutes allow tax debts as small as $400 to initiate the process. Homeowners most frequently subject to tax lien sales are those with subprime mortgages and the elderly.

Supporters of reform in the area are calling on lawmakers to create additional safeguards for homeowners. These could include giving people more opportunities to pay off their tax debts or to buy back their homes after they have been sold to satisfy the lien.

Source: Associated Press, "Report: Some lose homes over as little as $400," Daniel Wagner, July 10, 2012.

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