What Happens If You Don’t Pay Property Taxes on Your Home?

When a homeowner falls behind on property taxes, local governments can step in to recover the debt, often by seizing and selling the property. 

But the process for doing so depends heavily on where you live, with some states offering far more protection to homeowners than others.

Most states follow one of two main approaches: tax lien sales or tax deed sales. The key difference is who ultimately gains the right to take ownership of the home if the debt goes unpaid.

Lien states

In tax lien states, when a homeowner fails to pay their property taxes beyond local deadlines, the local government places a legal claim, called a lien, on the property for the amount owed, including penalties, interest, and fees. The homeowner still owns the home, but the government gains a financial claim against it.

The government then sells the lien at auction to the highest bidder. These auctions are often not public and are instead only open to registered bidders, with some localities limiting those bidders to qualified investors or trusts. The buyer pays the taxes upfront and, in return, gains the right to collect the debt (plus interest) directly from the homeowner.

The homeowner has a limited window of time to pay back the investor. If they aren’t able to pay within that redemption period, the investor can start foreclosure proceedings and potentially take ownership of the home.

Deed states

In tax deed states, the process of losing ownership is more direct. The government still places a lien on the property for unpaid taxes, but it doesn’t sell that lien. Instead, the government holds on to the lien while giving the homeowner a set amount of time to pay what’s owed.

If the homeowner still hasn’t paid by the deadline, the government can seize the property and sell it at auction to recover the unpaid taxes. In this case, the buyer at the auction purchases full ownership of the property, not just the lien.

The risk for homeowners: Home equity theft

To understand how dangerous unpaid property taxes can be for homeowners, it helps to look at two real-world cases that have set important precedents for how states deal with tax lien and deed sales.

Lynette Johnson, a commercial property owner in East Orange, NJ—a tax lien state—lost her property after she didn’t receive her tax bill for her first year of ownership. 

The city placed a $4,621.98 lien against the property and put it up for auction, unbeknownst to her. But there were no bidders, so the city bought the lien from itself.

For two years, the debt grew, collecting interest and fees, until it reached nearly $20,000. Eventually the city foreclosed on the property, at which time, the Johnsons first learned of the lien. 

But it was too late, the city took full ownership, and later sold it to a private investor for $101,000. The city kept all of the sale proceeds. Johnson received nothing.

Meanwhile, Geraldine Tyler, a 94-year-old homeowner in Hennepin County, MN—a tax deed state—lost her condo over a $15,000 unpaid tax bill.  

Once the redemption period expired, the county seized the home, sold it for $40,000, and also kept all of the proceeds. Tyler, like Johnson, was left with no property and none of the equity she had built.

Tyler’s case became the foundation of the Supreme Court’s 2023 decision declaring this practice unconstitutional. But despite the ruling, loopholes remain: As of today, five states still allow governments to keep surplus proceeds, though often through a complex and burdensome process for homeowners seeking repayment.

The remaining risk: Do auctions depress property values?

There’s one more layer of risk for homeowners facing tax foreclosure, and it comes down to how these properties are sold regardless of whether it’s a tax lien or tax deed sale state.

Picture trying to sell your home, but instead of listing it publicly, staging it, or showcasing its value, it's lumped into a bulk auction with other distressed properties, poorly marketed (if at all), and offered only to a narrow group of bargain hunters looking to flip it for profit. 

That’s the reality of many tax auctions today: a fire sale designed not to maximize value, but simply to help counties recoup their losses.

It’s that practice that’s now at the center of a new Supreme Court case.

At the heart of the case is the story of Marc and Lisa Pung, who lost their Michigan home to a tax deed sale. 

Even though the county later acknowledged their home was worth about $194,400, it seized the property over a disputed school tax bill of just $2,242 and sold it at auction for $76,000. The county kept the full amount and evicted the family.

Thanks to the precedent set by Tyler v. Hennepin County, lower courts ordered the government to return the "surplus proceeds" from that auction—about $73,000. But that’s still far less than what the Pungs would have netted if their home had been sold at fair market value.

That gap—between a home’s true value and what’s left after a discount-bin auction—is now what the Supreme Court is being asked to weigh. At stake is whether homeowners in tax deed and lien states will finally be entitled not just to due process, but to the fair value of what they’ve lost.

“If the government has the privilege to sell homes to collect property taxes, it should take care to act fairly and reasonably when it sells those properties,” Christina Martin, one of the lead attorneys arguing the Pungs’ case, told Realtor.com® in December. “It has never been easier to advertise real estate with apps … yet many counties still don’t bother, because they don’t care about whether they get a just price for the property.”

The question now is whether the Supreme Court will agree—and whether the next chapter in home equity theft will finally close the loopholes that continue to cost Americans their homes and their hard-earned wealth.