Tax Delinquent Property Options Before You Lose Your Equity

Falling behind on property taxes does not mean you lose the property overnight, but it does start a clock, and that clock moves differently depending on the state. Understanding exactly how tax liens and tax deeds work in Colorado, Arizona, and Alabama. And how much time you actually have. Is the difference between selling on your own terms and losing equity to a tax sale you didn't see coming.

Tax liens versus tax deeds

When property taxes go unpaid, a county generally does one of two things: sell a tax lien certificate to an investor who pays the taxes on your behalf and earns interest until you redeem it, or eventually issue a tax deed that transfers ownership of the property outright. Colorado, Arizona, and Alabama all use lien-based systems with a redemption period before a deed can be issued, but the length of that redemption period and the process for the eventual deed differ significantly.

These periods give homeowners real time to act, but interest accrues on the unpaid balance the entire time, and that interest compounds the longer the debt sits. County treasurer offices in each state publish the specific procedures, deadlines, and redemption amounts for properties sold at tax lien auctions, and checking directly with the county treasurer where your property is located is the most reliable way to know exactly where you stand and how much is owed.

How a sale pays off tax debt at closing

A property with delinquent taxes or an outstanding tax lien can still be sold. At closing, a title company calculates the full payoff, including accrued interest and any redemption premium. And pays it directly out of the sale proceeds before you receive the remainder. This is one of the most direct ways to resolve tax delinquency: rather than continuing to accrue interest month after month while trying to save up the redemption amount, a sale clears the debt in a single transaction and often leaves the owner with meaningful equity still in hand, depending on how much is owed relative to the property's value.

This only works, however, if the sale closes before the redemption period expires and a deed transfers to the lien holder. Once that happens, ownership has changed and a sale by the original owner is no longer possible. Acting early. Well before the redemption deadline. Preserves the most options and the most equity.

Tyler v. Hennepin County and equity protection

In 2023, the U.S. Supreme Court decided Tyler v. Hennepin County, ruling that a government cannot keep more than what is actually owed when it sells a property for unpaid taxes. Taking the full value of a home to satisfy a much smaller tax debt, and keeping the surplus, violates the Fifth Amendment's Takings Clause. The decision forced changes in how several states handle surplus proceeds from tax sales, requiring that any amount collected above the actual tax debt, interest, and costs be returned to the former owner rather than retained by the government or the lien purchaser.

This ruling matters for homeowners facing a tax delinquency because it reinforces a basic principle: your equity above the tax debt is still yours, whether you sell it directly or lose the property through the tax process. If a tax sale has already occurred on your property, it is worth confirming with the county whether any surplus is owed to you under current post-Tyler procedures.

What to do if you are behind on property taxes

• Contact your county treasurer directly to get the exact payoff amount and the redemption deadline. Do not rely on outdated tax bills.
• Ask whether a payment plan is available; several counties offer installment options for delinquent taxes before a lien sale occurs.
• If a lien has already been sold, calculate how much time remains in the redemption period before assuming you have no options.
• Get a property valuation early so you know how much equity is actually at stake relative to the tax debt.

We buy properties with delinquent taxes and existing liens across Colorado, Arizona, and Alabama, including counties like Elbert County and Pinal County, and we handle the payoff calculation directly with the title company so you do not have to front any cash. For a broader look at how liens of any kind are handled in a sale, see our post on selling a house with liens.