What Happens to Excess Funds After a Tax Foreclosure Sale?
Do you pay your property taxes on time, every time?
If you don’t, then the Texas Tax Code (Section 34) allows taxing entities (county, city, school, etc.) to sell the property to regain your unpaid tax. But it’s unlikely that the tax you owe is equivalent to the amount investors will pay at auction.
What happens to the excess funds from the sale?
The tax foreclosure excess funds remain with the agency that sold your property. To get them back, you must petition the agency.
Here’s what you need to know about accessing excess funds from your tax foreclosure sale.
What Happens to Excess Funds from a Tax Auction?
Let’s say you owe $16,000 in property taxes to the county. You can’t pay, so the county sells your property in its annual tax sale.
When the county sells the property, it only needs to generate the $16,000 in due tax. Anything on top of that is of no real concern for the county. That means if your house is worth $150,000, the county can sell it for $20,000 if that’s the top offer they get.
Why don’t they make an effort of turning a profit? First, it’s not their role – and investors who use these auctions go for cheap properties. Second, the excess funds belong to the last owner of the property before sale, which is you.
The County Will Notify You of Excess Funds – Maybe
The taxing entity that sold your property will notify you about your excess funds after the annual auction. However, the notification process is flawed, and frankly, the body doesn’t commit itself to ensure you’re notified.
Often, the county sends out a single notice letter. Moreover, the message goes to the last owner’s last known address, which is usually the property auctioned. And it’s unlikely you still live there.
However, there are more complicated cases where it is difficult for the county to find the owner. For example, if you inherit a property that you don’t pay tax on or you inherit a property with tax debt, the county may not be able to find you to tell you there is excess available. And they certainly aren’t in the business of hiring private investigators to track you down.
You Need to Claim Your Excess Within Two Years
The tricky part of the notice is that you only have two years to respond and initiate the claim.
If you don’t respond, the county (or tax authority) keeps your excess permanently (unless you get a court order).
Why is this a problem? Because many people don’t realize they can claim back the excess, and by the time they understand what happened, the clock has run out.
Even once you initiate your claim, it can take years for the process to play out, unless you hire a lawyer to represent you.
Do You Have a Right to Excess Funds?
If the county sold your house to recover back taxes and the sale generated excess funds over $25, then you have two years to claim the money.
However, you may benefit from the help of a lawyer if you want to see your money sooner than 2025.
Do you have questions about the tax foreclosure process or excess funds? Get in touch to learn more about your rights after a tax auction.