Tax Foreclosure Vs Mortgage Foreclosure: Understanding The Differences

Foreclosure is a term that most homeowners fear, but not all foreclosures are the same. The two most common types are tax foreclosure and mortgage foreclosure. Understanding the differences between them can help homeowners take the right steps to prevent losing their property.

What Is Mortgage Foreclosure?

Mortgage foreclosure happens when a homeowner fails to make their mortgage payments. Since most homes are financed through a loan, the mortgage lender (usually a bank) has a lien on the property. If the borrower stops paying, the lender has the right to repossess and sell the home to recover their money.

The Mortgage Foreclosure Process

1. Missed Payments: Once a homeowner falls behind on mortgage payments, the lender sends notices about the delinquency.
2. Notice of Default (NOD): After a certain period (usually 90 days), the lender files a formal notice, warning the homeowner that foreclosure is imminent.
3. Pre-Foreclosure Period: Homeowners may have options to negotiate with the lender, apply for loan modification, or sell the home before foreclosure.
4. Auction or Sheriff’s Sale: If the homeowner does not resolve the debt, the property is auctioned to the highest bidder.
5. Bank-Owned Property (REO): If no one buys the home at auction, the lender takes possession and sells it as a real estate-owned (REO) property.

A mortgage foreclosure typically affects a homeowner’s credit score and financial standing for years, making it harder to buy another home.

What Is Tax Foreclosure?

Tax foreclosure occurs when a homeowner fails to pay property taxes rather than a mortgage. Unlike a mortgage foreclosure, this process is handled by the local government.

The Tax Foreclosure Process

1. Delinquent Taxes: Property taxes must be paid yearly. If they are unpaid, the homeowner receives a notice of delinquency.
2. Tax Lien or Tax Certificate Sale: Some states sell tax liens to investors, allowing them to collect overdue taxes with interest.
3.  Redemption Period: Many states offer a redemption period where the homeowner can pay overdue taxes and keep the property.
4. Foreclosure Judgment: If taxes remain unpaid, the county government forecloses on the home.
5. Auction or Transfer: The government sells the property at a tax auction, or in some cases, it is transferred to a new owner.

Tax foreclosure can happen much faster than mortgage foreclosure, and in some cases, the homeowner may lose their property over a relatively small tax debt.

Final Thoughts

While both types of foreclosure result in losing a home, tax foreclosure often happens more quickly and over much smaller debts. Homeowners struggling with payments—whether mortgage or taxes—should take early action to explore their options and avoid foreclosure before it’s too late.

If you’re facing property-related challenges, Wise Living Solutions is here to help. We specialize in solving real estate problems and finding solutions for homeowners in difficult situations. Contact us today at 269-601-8483  to discuss your options!