Tax Lien Foreclosure

A tax lien foreclosure is a legal action initiated by a property tax authority — county, city, school district, or municipality — to collect unpaid property taxes. In Texas, property tax liens have the highest priority of any lien on real property, superior even to first mortgage liens. If property taxes go unpaid for more than one year, the taxing authority can initiate a tax lien foreclosure that can wipe out even a first mortgage.

Texas Context

Texas has a unique property tax lending system where third-party tax lenders can pay delinquent taxes on behalf of a property owner and then hold a priority tax lien. This creates complex multi-lien scenarios that investors must research before bidding at First Tuesday auctions. A property with a first mortgage and delinquent taxes may result in the tax lien holder or the taxing entity initiating a separate tax foreclosure on a different schedule than the mortgage foreclosure.