ALTA Recommends Changes to Property Tax Foreclosure Laws

May 23, 2024

Across the nation, homeowners are losing their homes and the equity they’ve built in them due to unpaid property tax debts, and older adults, those on a low or fixed incomes, and Black and Latino/Hispanic households are most at risk. 

To help with this, ALTA, along with AARP and the National Consumer Law Center (NCLC), have issued recommendations for states to revise their laws to protect property owners from unnecessary tax foreclosures and promote sustainable homeownership. 

In 2023, the U.S. Supreme Court ruled in Tyler v. Hennepin County that it is unconstitutional for a local government to take a property in a tax foreclosure and keep the excess surplus after the tax debt and costs are paid. However, many states have yet to revise these out-of-date laws.

“Homeownership sustainability is a key part of wealth creation and preservation,” said Elizabeth Blosser, vice president of government affairs at the American Land Title Association. “Good public policy should promote preventative measures to avoid the loss of property to tax foreclosure sales. This is a critical component of housing opportunity and long-term affordability.”

One of the most important steps a state can take to prevent tax foreclosure is requiring clear, comprehensive, plain language notices at every stage of the tax foreclosure process. States should ensure that notices delivered to the homeowners are translated into the consumer’s language of choice and include information about remedies and assistance programs available, and that they note the consequences of each stage of the tax foreclosure process.

“States must enact laws that protect those most at risk of losing their homes to tax foreclosure, particularly lower-income homeowners and those aged 65 or older,” said Andrea Bopp Stark, senior attorney at NCLC. “States should actively promote available tax relief programs that include prepayment and repayment plans, affordable interest rates and limited penalties on past due taxes and reasonable time periods and terms to redeem the property.”

Additionally, heirs’ property—property passed down among family members without going through probate—is too often lost in a tax sale when heirs fail to receive notification of the tax sale foreclosure and lack access to tax relief programs.

Highlighting this problem, a retired grandmother lost her home after she could not pay a tax debt of around $9,000, which ballooned to close to $30,000 with interest and fees. Her home later sold for $242,000, and she was not given any of the proceeds from the sale.

To ensure that homeowners receive the maximum amount of their home equity possible, ALTA, AARP and NCLC are calling for states to require that municipalities attempt to sell properties using a real estate agent before conducting a public auction and return any excess sale proceeds to the former owner, including heirs if the former owner is deceased, and create a simple process for claiming the excess proceeds.

“States must ensure that the tax foreclosure process leaves the consumer who lost their home in the best position to recover financially,” said Jenn Jones, vice president of financial security and livable communities at AARP. “Property tax debts are often well below the value of a home, and many foreclosed homes sell for more than 10 times the amount owed in unpaid taxes. And in some states, homeowners do not receive any of the proceeds from the sale. AARP is working in statehouses across the country to ensure this money is rightfully returned to homeowners.”

Recommendations from the group include:

  • Requiring clear, meaningful notice at every stage of the tax foreclosure process
  • Ensuring the owners, including those who have inherited an ownership interest, receive notice of the foreclosure stages
  • Making redemption costs affordable and accessible
  • Establishing alternatives to tax sales
  • Protecting older adults and low-income households who struggle to pay property taxes to help prevent foreclosures
  • Creating and improving property tax exemptions
  • Requiring market-driven tax foreclosure processes for owner-occupied/involved residential properties if there is a tax sale

Contact ALTA at 202-296-3671 or [email protected].