Someone's property taxes are generally not of much interest to creditors, except in the extreme case that a homeowner fails to pay and the local government attaches a lien to the property and eventually seizes it to retrieve the amount owed. This can adversely affect the homeowner's credit score.
Property Tax Lien
A lien is a legal claim on an asset, in this case a home, that allows the lienholder to take possession of the asset if the debt owed, in this case taxes, is not paid. The property can then be sold to cover the unpaid taxes.
Credit Score Effects
According to Bills.com, although a property tax lien is often for far less than the mortgage, it can still have a significant negative effect on a credit score. A person's FICO score is based on numerous financial factors, especially legal actions against a debtor's assets. A tax lien shows that a borrower is having trouble meeting his obligations.
Long-Term Effects
The long-term effects of a property tax lien can be significant. Even if debtors gather enough funds to pay off the taxes and keep their houses, the lien action may show on their credit report for years. A paid-off lien will show up on a credit report for seven years, while an unpaid lien can last up to 15 years,according to Experian, one of the three major credit bureaus.
Bankruptcy
In some cases, filing for bankruptcy can lead to discharge of the debt, but the lien may remain. Title companies will notice this legal action and you will not be able to sell your house until you pay off the lien, regardless of your discharged debt. The bankruptcy will have a severely negative effect on your credit.
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