Foreclosure and Property Tax Lien Sales in Texas

Your Rights as a Former Property Owner

If you’ve gone delinquent on your property taxes, then you are at imminent risk of foreclosure. Your taxing office retains control of your property tax lien until you pay, and if you don’t, they’ll sell it at an auction.

This results in you losing your home and the investment on your property. What rights do you have when your property goes up for sale in a property tax deed auction? Read on to learn more about the rights of former property owners.


Claim Excess Proceeds

Texas counties hold monthly property tax lien sales, also called property deed sales. These sales operate as an auction. When your property is put up for sale, the starting bid is the total owed on your delinquent taxes.

This is because the taxing unit’s priority is collecting your overdue taxes, not getting the money your property is worth. This is why these can be desirable sales for investors—they can purchase a property at a greatly reduced rate and sell it for a profit.

For example, if your property is worth $125,000, and you owe $15,000 in delinquent taxes, the bidding starts at $15,000. Of course, the bidding often leads the property to be sold at a higher rate.

In this case, we’ll say your property sells for $35,000 at auction. The court takes $15,000 of that sale to settle your debt. What happens to the other $20,000?

This $20,000 is considered “excess proceeds.” As the original property owner, you are entitled to this money. Unfortunately, many former property owners are not aware of this right.

The taxing office is required to notify the original owner by mail at their last known address. If the owner never receives the notice or cannot be found, then the court retains the funds.

You have two years after the sale of your home at a property deed sale to reclaim these funds. To do so, you must file a petition to the court declaring your right to this money.

In the unfortunate event that your home is sold at auction, this is the least consolation you deserve. Don’t forfeit your right to these excess proceeds—stay informed on the sale of your property and claim any excess proceeds.


Redemption Period

If your homestead property tax lien is sold at a tax foreclosure sale, you also have two years to buy your property back. This is known as a “redemption period.”

Within the first year, you can buy the property for a 25% premium fee added to the sale price. In the second year, this premium doubles to 50%. For commercial property, original owners have a 180-day redemption period.

There is risk involved in buying tax lien properties. Generally, interested buyers cannot or simply do not view the property prior to buying.

All sales are listed as “buyer beware,” and often investors decide what to purchase based on the listing description alone. There are no refunds for tax liens purchased at a tax sale, regardless of the state of the property.

Additionally, if the original owner declares bankruptcy, this could lead to trouble for the investor. Typically, property tax liens have priority over other types of liens, but bankruptcy is an exception.

In this case, the IRS can take control of the tax lien and the investor loses money. Investors will buy tax lien property for a variety of reasons. They may buy it with the intention of reselling it at market value.

If they can get a building worth $150,000 for $35,000, they can turn a wide profit. The 25% premium is another incentive—even if the original owner buys back the property, and many do, the investor automatically profits 25%.

If you are considering redeeming your property, the 25-50% premium may seem steep. However, remember that your home may have been sold at a price much lower than its value.

In our example, the home is valued at $150,000 and was sold for $35,000. In this case, you can repurchase the home for $43,750 in the first year and $52,500 in the second year.

This is a high cost considering the home was lost over $15,000 worth of delinquent taxes. However, it is much cheaper to repurchase your old home while you retain this right than to purchase a new home at market value.

Of course, your tax debt and the sale price of your property may vary greatly from this example. Use this information as a rough guide to your rights as a former property owner should you find yourself in this situation.


How to Avoid Foreclosure in the First Place

Even with these little-known exceptions, foreclosure is the worst-case scenario for delinquent taxes. The consequences of delinquency skyrocket once a foreclosure lawsuit comes into play.

Tax lien sales may be a good deal for the investor, but the property owner should avoid this at all costs. If you find yourself delinquent on your taxes, one of the solutions is to consider taking out a property tax loan. Besides a property tax loan, there are other ways to avoid foreclosure.

Property tax loan can give you the flexibility you need to settle your debt and avoid foreclosure. When you take out a property tax loan, your property tax lien transfers to your lender.

Majority of the lenders do whatever they can to avoid foreclosure. They don’t want to sell your house—they want to help you settle your debt and regain financial stability. This is their financial model.

Property tax lenders in Texas have foreclosed on only 0.7% of properties—your taxing unit can’t guarantee you these odds.



Losing your home is a devastating event, but remember that you haven’t lost everything. Don’t forget that for the first two years, you retain the right to:

  1. the excess proceeds from the sale of your property and
  2. the right to redeem your property for a premium of 25-50% of the auction sale price.

About the Author: Direct Tax Loan is the largest online platform in the United States that connects top property tax lenders with residential and commercial borrowers. Regardless of where you are located in the state of Texas or Nevada, we’ll be thrilled to connect you with reputable lenders and help you pay off your property tax bill.

About the Author
Gered Ford
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