Property Tax Liens

What is a property tax lien?

A tax lien is issued when one fails to pay one’s property taxes on time. The local government files a legal claim against the house, or property, of the owner who has failed to pay their property taxes. The house serves as collateral for the unpaid taxes. 

Collateral is an asset that acts as a kind of insurance for whomever is owed money. For example, a house usually serves as collateral for a standard fixed-rate, 30-year home mortgage loan. Now imagine that a homeowner refuses to make their mortgage payments. The bank that extended the loan has a claim to the value of the property. It can seize and sell the person’s home at auction to recover the mortgage payments it is owed. The same intuition behind the notion of collateral can be applied to tax liens.   

Consequences of a property tax lien

A tax lien is a substantial legal and financial headache for a tax-delinquent homeowner.

On the legal side, it is critical to understand that a tax lien is a claim against property, not a person. Furthermore, a local tax lien receives higher priority than any other claims to the underlying property, including claims made by the IRS for delinquent federal tax debt.1 A homeowner cannot escape the tax lien by declaring bankruptcy.2 A homeowner may also find it difficult to refinance or sell their home while a tax lien is imposed.

On the financial side, the homeowner pays a penalty and interest on the unpaid tax amount. In the District of Columbia, the yearly or annualized interest rate is 19.5 percent, or 1.5 percent compounded monthly. The one-time penalty rate is 10 percent. In the case of the Marine who was foreclosed on in 2011 after living in his house for twenty years, he owed a total of 317 dollars at the time the lien was sold at auction to EMBASSY TAX SERVICES, LLC in 2007.3 Of this amount, the overdue tax debt amounted to a mere 134 dollars, the remaining 183 dollars consisted of accrued interest plus the one-time penalty fee.4

  1. IRS §§5.17.2.6.5.6 Real Property Tax and Special Assessment Liens: https://www.irs.gov/irm/part5/irm_05-017-002 (accessed March 5, 2023).↩︎

  2. 11 USC §724: Treatment of Certain Tax Liens: [link] (accessed March 3, 2023).↩︎

  3. This tax lien transaction is recorded on pg. 120 of the 2007 Buyer’s Book for the July 12, 2007 D.C. Real Property Tax Sale [link].↩︎

  4. At the time of the sale, the annualized interest rate was 18 percent rather than the current 19.5 percent statutory rate. Following a series of property tax code reforms begun in 2009, tax liens can only be sold on properties with tax debt in excess of 2,500 dollars. While the lien in this example was sold to Embassy Tax Services, the ultimate owner of the property remains unclear. Building permits for interior renovations were filed by different individuals in 2011 and 2017 at the same address. Most likely, Embassy Tax quietly transferred the deed certificate to another homeowner -- either the new owner bought Embassy Tax or Embassy Tax changed the titleholder through foreclosure action. Google Maps images indicate that the property is still residential.↩︎