Owning property is a great way to invest, but you still have to pay property tax to your local government even if you have finished the mortgage payments. However, sometimes our understanding of the law lands us in trouble; Martha Stewart thought she did not have to pay property taxes on her homes because they were under renovation. Unfortunately, the IRS thought differently, and the celebrity had to pay $220,000 in property taxes. While to a celebrity, the amount is easy to come by, it can be a challenge to the average American, and the property may end up being auctioned. The auction process sometimes results in tax sale overage, which we will discuss in detail below.
Tax Sale Overage Defined
REtipster.com discloses that a tax sale overage can also be referred to as an overbid, tax sale surplus, or excess proceeds. A tax sale overage happens when you cannot pay property tax for a certain period of time. The county government will be patient with you, but after that, they will seize the property, and since you owe a certain amount in property taxes, they will want to recover it. Consequently, the property will be up for auction, and the bidding will start at the amount you owe the government.
Of course, the bidders know the property is worth much more than the starting bidding price. Therefore there will be a tug of war on the price as each wants to end up with the property. If the highest bidder has claimed the property for a much higher price than the amount owed to the government at the drop of the hammer, the surplus is referred to as the tax sale overage. The government is only interested in what you owe, and the rest will be up to you to claim it. Understanding this is better using an example. Therefore, let's take, for instance, you bought a house for $200,000, and after two years, you were unable to pay the property taxes, which accumulated to $30,000. Once the property goes to auction, and the highest bid is $70,000, the government will take their $30,000, and the $40,000 is the tax sale overage.
What Happens to the Tax Sale Overage?
According to The Motley Fool, once the sale is complete and there is a tax sale overage, the amount is credited in an overage account. It can then be claimed by any interested parties that can be the rightful owner of the property, the heir of the estate, or mortgagee. Whoever has the right to claim the tax sale overage is determined by state law, and different states have varying principles. So in some, the state takes everything, including the overage, while in others, anyone who has an equitable interest in the property has the right to claim the amount. If the property still has a mortgage debt, the lender must be paid first before the amount can be put in an overage account. Therefore, if, in the example above, the property owner owed $20,000 on their mortgage, after the government recovers their $30,000, the lender would be paid the $20,000. The remaining $20,000 would be placed in an overage account, which the property owner can claim and collect.
Procedure to Apply for Tax Sale Overage
Different states have different tax sale overage claiming procedures; thus, Spartanburg County summarizes how to claim for property tax in the county. As per the state law, the legal claimant to the overage amount is the owner of the record before the end of the redemption period of the tax sale. The claimant must have a claim form in which a deed must be attached. The deed obtained from the Tax Collector contains details such as the map reference, the defaulting taxpayer, and more. The claimant must also prove ownership of the property by attaching a copy of the real estate conveyance sheet or a copy showing how the claimant acquired the property. The claimants' social security cards and their pictures should also be attached to the claim form, which must be duly filled.
Upon completing filling the claim form, the claimant should sign, and if there are multiple claimants, they should all sign before the notary public. The notary public will require the claimant to swear before affixing his signature, seal, and date of the commission expiry to the claim form. The claim form with the necessary attachments should then be submitted to the Delinquent Tax Office. Once the County Tax Collector verifies that everything is in order, the overage will be paid 90 days after the deed's execution. However, if the Tax Collector notices an error or another claimant comes forward, judicial action will be initiated.
You Can be Duped out of Your Tax Sale Overage
Not everyone knows that they can claim a tax sale overage; hence some unscrupulous businesses take advantage of this ignorance. Information is power, and Indy Star published how some property owners were cheated out of their property. According to the article, three businesses tried swindling property owners out of $3 million in overage because they did not understand the tax sale process. The unscrupulous businessmen paid the property owners a few hundred dollars to hand over their properties to enable them to claim the tax sale overage. The lawsuit filed hence wanted $9 million paid in damages, penalties, and fines
It was a well thought-out scheme that was quite lucrative considering that one of the property owners got a meager $450 in exchange for his property's rights, whose tax sale overage amounted to $900,000. In total, the ignorant property owners were paid by the scam artists $13,640 to give up rights to their properties. Consequently, the con artists had a right to claim tax sale overages amounting to $3,265,204. Although the legal authorities were notified, it was a bit too late because some of the money had already been claimed by the defendants.
Written by Allen Lee
Read more posts by Allen Lee