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Tax Certificate Auctions: How They Work

By Lynn Sanchez

The Tax Man: Treasurer John Ewing

Douglas County Treasurer John Ewing

Omahans receive their annual property tax bills in mid-December from the Douglas County Treasurer John Ewing.

The Treasurer’s office collects property taxes, vehicle registration fees and permit and licensing fees from county entities such as the Health Department. Because they share space with the Nebraska Department of Motor Vehicles, people often mistakenly assume the Treasurer handles driver licenses. The DMV is a completely separate office run by the state, says Ewing.

Property Tax Deadlines

The majority of property tax payments go off without a hitch. 2019 property taxes are due in full by December 31, 2019. However, many people who do not have escrow accounts split the payment into equal increments, one half due by March 31, 2020, the second half due by July 31, 2020. As long as taxes are paid by these deadlines, they are considered on time.

Under 1% of taxpayers default on their payments, says Ewing. About 95% of those are eventually paid, plus the fees and interest accrued “So (nonpayment) is a small problem — unless you are the person who is delinquent,” he says.

Of the over 200,000 tax bills sent out, Ewing says, between 3,000 – 4,000 people fail to pay any taxes at all by March 31st. After that deadline, Nebraska state statute requires a 14% interest penalty be added to the total amount owed. For $3,000 in taxes, that adds $420 to your bill. The worst thing you can do, says Ewing, is ignore the problem. It could potentially lead to foreclosure because of something called a Tax Certificate Auction, also called a Tax Lien Sale.

Losing a home in this scenario is rare, Ewing says, but it does happen. “I think there’s a myth out there that the Treasurer’s office or the people who buy tax liens are taking people’s houses. Most of these (investors) are truly trying to get the 14% interest. Now, there are some who would rather have people not pay and try to foreclose and get the house, but most of the bidders want that 14%. That’s a great return on your investment.”

Could I Lose my Home From Nonpayment of Taxes?

There have been several highly-publicized cases of Nebraskans losing ownership of their property as the result of a tax lien sale. A lien is a legal claim on assets which allows the holder to obtain access to property if debts are not paid. If 2019 property taxes remain unpaid past August 1, 2020, their property tax debt becomes subject to this auction.

Yes, this is legal and many states do it. It’s a way to make up for the annual shortfall that unpaid property taxes leave in the budget, which adds up to about $5,000,000 for Douglas County. Notably, property owners receive no special notification about the results of the tax certificate sale other than the annual bill sent out in December, which shows they have defaulted on their payments. This has been the topic of debate in the Nebraska Legislature.

How the Auction Works

Every Nebraska county holds a public auction of tax lien certificates, selling these delinquent tax bills to the highest bidder, individuals or companies. Public online bidding opens the first Monday in March, after a required public notice of the auction appears for three consecutive weeks in a local paper. When the auction opens, investors bid online for the certificates starting at the cost of the unpaid tax plus penalties and fees. Winning the auction and paying the taxes does not mean they automatically own the property, but the county passes the debt on to the investor. The investor is now entitled to repayment by the property owner of the tax plus that fat 14% interest. The auction is not without risk for investors — in some cases, they could lose their money. Paying off the tax and the lien is handled through the Treasurer’s office rather than directly to the investor.

If an owner fails to pay taxes on their property for three years in a row, the same investor must go through the auction process each year and pay off the debt in order to be eligible to receive the deed and title to that particular property.

After that three year redemption period is up, the certificate holder is entitled by law to acquire full legal ownership of the property. They must apply six months before the certificate’s maturity date to acquire a deed to the property. Since they were not paid by the property owner, they are able to sell or foreclose to get a return on their investment. As legal owner, they may evict anyone who is living on the property.

The problem is county-wide, Ewing says. “You’re going to have a slightly higher percentage in poorer areas of the city, whether that be North Omaha, South Omaha or even some of the smaller houses in West Douglas County. Those are going to be the people most likely not to pay because it’s a financial issue.” The Treasurer does not track who is paying or not paying their taxes. Property Tax Manager Dennis Rookstool says, “Our computer system is a property tax collection system. We don’t track demographic information. We don’t know their age or race. We know their address, but we don’t have any (demographic) data in our systems.”

what to do If You Get Behind

There may be several reasons why people do not pay property taxes besides financial duress. One scenario Ewing’s office sees consistently is homeowners who’ve had an escrow account that automatically paid their taxes for years who finally pay off their house. They are not in the habit of paying the taxes themselves, so they miss the payment deadline.

Bottom line, Ewing says, “These things are not going away. It’s only going to continue to grow. We want people to try and address this situation as soon as they become aware of it. And the time to do it is when they get that first delinquency notice from us. Figure out how to get them paid so it doesn’t go to tax sale and involve somebody else. Before it’s sold at tax sale, you’re still dealing with the Treasurer’s office. Unfortunately, it doesn’t work that way a lot of times, and then you have people coming to us when somebody’s ready to foreclose. There’s nothing the Treasurer’s office can do once that step is taken.”

To be clear, the Treasurer’s office does not offer programs for abatement, deferral or repayment. But by calling the office, Ewing says, “We can give people advice that might help them figure out a way to get through the situation and get their taxes paid.” The phone number for the Douglas County Treasurer is 402-444-7103.