Sell a Land Note When Property Taxes Are Delinquent in Texas

Discovering that the property taxes on the land securing your note are delinquent is one of the most unsettling situations a Texas note holder can face. Property tax delinquency does not just affect the borrower — it directly threatens your security interest because Texas property tax liens take priority over virtually every other lien on the property, including your deed of trust. If the tax delinquency is not resolved, the taxing authority can eventually sell the property at a tax sale, and your deed of trust lien can be extinguished entirely. Understanding how to sell a land note when property taxes are delinquent in Texas — and why acting quickly is essential — can mean the difference between recovering meaningful value from your note and watching your investment disappear at a tax auction.

Property tax delinquency on properties securing owner-financed notes is more common than many note holders realize. Unlike conventional mortgages, where the lender typically requires an escrow account for taxes and insurance, many owner-financed land deals do not include escrow provisions. The borrower is responsible for paying property taxes directly, and the note holder may not learn about a delinquency until the situation has become serious. This information gap is one of the practical challenges of holding an owner-financed note, and it underscores the importance of monitoring your collateral's tax status proactively rather than waiting for problems to surface on their own.

Whether you have just discovered a tax delinquency or have been dealing with one for some time, this guide will explain how delinquent property taxes affect your note, what your rights and obligations are under Texas law, and what your options are for resolving the situation — including selling the note to an experienced buyer who can navigate the tax complications. The situation is serious but manageable, and acting with knowledge and urgency is the key to protecting your investment.

How Property Tax Liens Work in Texas

The Priority of Tax Liens

In Texas, property tax liens are automatically created on January 1 of each year and attach to the property as a super-priority lien. This means the tax lien takes precedence over virtually all other liens — including your first-position deed of trust, regardless of when it was recorded. This priority is established by the Texas Tax Code and cannot be overridden by contract. If you hold a deed of trust that was recorded ten years before the tax delinquency arose, the tax lien still takes priority over your deed of trust. This super-priority status makes delinquent property taxes one of the most serious threats to a note holder's security interest, because the taxing authority can foreclose on the tax lien and sell the property free and clear of your deed of trust.

The practical implication is straightforward: if property taxes go unpaid long enough, the taxing authority can initiate a tax foreclosure sale. The proceeds of the sale are used to pay the delinquent taxes, penalties, interest, and costs first. Only if there are excess proceeds after the taxes are satisfied would junior lienholders — including you, the deed of trust holder — receive anything. In many tax sales, particularly on rural Texas land, the sale price is at or near the tax amount, leaving nothing for the deed of trust holder. This is why delinquent property taxes are not just a nuisance — they are an existential threat to your note's value.

The Tax Foreclosure Timeline in Texas

Texas property taxes are due on January 31 of each year, and penalties and interest begin accruing on February 1 for any unpaid balance. The penalty starts at 6 percent in February and increases by 1 percent per month through June, when it reaches 12 percent. After July 1, an additional 20 percent collection penalty may be added if the account is referred to a delinquent tax attorney. Interest accrues at 1 percent per month. The taxing authority can file suit to foreclose on the tax lien as soon as the taxes become delinquent, although in practice, most jurisdictions allow some time before pursuing legal action. For most property types, the taxing authority can pursue a tax sale after obtaining a judgment, which typically takes several months to a year or more from the initial delinquency date.

The timeline gives you some breathing room, but not as much as you might think. Once a tax suit is filed, the process moves forward with court involvement, and resolving the delinquency becomes more expensive and complicated. Acting before a tax suit is filed — paying the taxes yourself or selling the note — is significantly simpler and less costly than dealing with the situation after litigation has begun. Monitoring the property's tax status regularly and addressing any delinquency promptly is the best way to prevent the situation from escalating to the point where your security interest is at serious risk.

Your Rights and Options as a Note Holder

Paying the Taxes Yourself

As a note holder with a deed of trust on the property, you have the right to pay the delinquent property taxes yourself and add the amount to the borrower's obligation under the note. Most well-drafted deeds of trust include a provision allowing the note holder to advance funds for property taxes and add those advances to the secured debt. This means you can protect your security interest by paying the taxes, and the borrower owes you the amount advanced plus any interest specified in the deed of trust. Paying the taxes removes the super-priority tax lien and preserves your position as the first lienholder on the property.

The decision to pay the taxes yourself depends on several factors: the amount of the delinquency, the borrower's payment history on the note, the likelihood that the borrower will reimburse you, and your financial capacity to make the advance. For a small delinquency on an otherwise performing note, paying the taxes is often the most practical choice — it costs you a few hundred or a few thousand dollars and preserves a note that may be worth tens of thousands. For a large delinquency on a note where the borrower has also stopped making monthly payments, advancing additional funds to cover taxes may be throwing good money after bad. Each situation requires individual assessment.

Demanding That the Borrower Pay

Your first step upon discovering a tax delinquency should be to contact the borrower and demand that they pay the delinquent taxes immediately. The borrower's obligation to pay property taxes is typically established both in the deed of trust and as a matter of general ownership responsibility. A written demand specifying the amount owed, the penalties accruing, the potential consequences of continued delinquency (including foreclosure by the taxing authority and acceleration of the note by you), and a deadline for payment puts the borrower on formal notice. Some borrowers will respond to this demand and pay the taxes, particularly if they were unaware of the delinquency or if they have the financial capacity but simply neglected the obligation.

If the borrower does not respond to the demand or cannot pay, the tax delinquency becomes your problem to solve, regardless of whose fault it is. You can pursue foreclosure under your deed of trust (treating the failure to pay taxes as a default), pay the taxes yourself and add the amount to the debt, or sell the note to a buyer who can manage the situation. The worst response is inaction — allowing the delinquency to grow while hoping the borrower will eventually address it is a recipe for a tax foreclosure that could wipe out your entire investment.

Treating the Tax Delinquency as a Note Default

Most promissory notes and deeds of trust include a provision making the borrower's failure to pay property taxes a default under the note. This means you can treat the tax delinquency exactly as you would a payment default — send the required notices, accelerate the note, and proceed with foreclosure under your deed of trust. By foreclosing on your deed of trust, you can acquire the property at the foreclosure sale and then pay the delinquent taxes directly, removing the tax lien threat. This approach is particularly viable when the property's value significantly exceeds the combined note balance and tax delinquency, giving you meaningful equity to recover. For a complete understanding of the foreclosure process, our guide on how to foreclose on a land note in Texas covers every step.

Selling a Land Note with Delinquent Property Taxes

Can You Sell a Note When Taxes Are Delinquent?

Yes, you can sell a land note when property taxes are delinquent in Texas. Experienced note buyers understand that tax delinquency is a common complication, particularly with owner-financed land notes where no escrow account is in place. The key question for the buyer is not whether the taxes are delinquent but how the delinquency affects the overall risk and recovery picture. A note on a property worth 80,000 dollars with a 35,000-dollar note balance and 3,000 dollars in delinquent taxes is a very different proposition than a note on a property worth 40,000 dollars with a 35,000-dollar balance and 15,000 dollars in delinquent taxes. The buyer evaluates the total picture — note balance, tax delinquency, property value, borrower status — and provides an offer based on the expected net recovery after resolving the tax situation.

How Tax Delinquency Affects the Sale Price

Delinquent property taxes will reduce the price a buyer offers for your note, but the reduction is typically proportional to the amount of the delinquency plus the costs the buyer expects to incur in resolving it. In the simplest analysis, the buyer subtracts the delinquent tax amount (including penalties and interest) from what they would otherwise offer for the note. In practice, the reduction may be slightly larger than the exact tax amount because the buyer also accounts for the additional risk and complexity of managing the tax issue, including the possibility of additional tax years becoming delinquent before the situation is fully resolved. For note holders who have been paying taxes themselves to keep the lien clear, this is one of the benefits of that strategy — by keeping the taxes current, you preserve the note's value and avoid the deduction that a buyer would otherwise apply.

Why Selling May Be the Best Option

For many note holders dealing with delinquent property taxes, selling the note is the most practical option because it resolves multiple problems simultaneously. You receive cash, you eliminate the tax lien risk, you avoid the cost and time of foreclosure, and you transfer the entire complicated situation to a buyer who has the expertise and resources to manage it. An experienced buyer like Longhorn Note Buyers can evaluate notes with tax delinquency issues, factor the taxes into their pricing, and close the transaction knowing exactly what they are taking on. With over $46 million in Texas notes purchased since 2007, Longhorn has encountered every variation of tax delinquency and knows how to navigate the resolution process efficiently. Selling to Longhorn allows you to walk away clean, with cash in hand and no further obligations or risks related to the delinquent taxes or the underlying property.

Preventing Tax Delinquency on Your Texas Land Note

Requiring Escrow for Taxes

The most effective way to prevent property tax delinquency is to include an escrow requirement in the promissory note and deed of trust at the time the transaction is created. An escrow provision requires the borrower to include a monthly amount for property taxes as part of their regular payment, and the note holder (or servicer) holds those funds in escrow and pays the taxes when they come due. This ensures the taxes are paid on time every year, eliminating the risk of delinquency. If your existing note does not include an escrow provision, it is too late to unilaterally impose one, but if you create new owner-financed deals in the future, including an escrow requirement is a best practice that protects your security interest.

Monitoring Tax Status Regularly

For notes without escrow provisions, monitoring the property's tax status regularly is the next best prevention strategy. Most Texas county tax assessor-collectors maintain online databases where you can check the tax status of any property. Checking the property's tax status at least annually — and ideally semi-annually — alerts you to any delinquency before it grows into a serious problem. Many professional loan servicers include tax monitoring as part of their standard service, which is another argument for having your note professionally serviced. Early detection of a tax delinquency gives you the maximum number of options for resolution, including contacting the borrower, paying the taxes yourself, or selling the note before the situation deteriorates further. For comprehensive guidance on the documents and records you should maintain, our article on documents needed to sell a land note in Texas covers best practices.

Communicating Expectations to the Borrower

Clear communication with the borrower about their obligation to pay property taxes — and the consequences of failing to do so — can prevent many tax delinquency situations. When the note is created, the borrower should understand that paying property taxes is their responsibility, that failure to pay constitutes a default under the note, and that the note holder has the right to pay the taxes on their behalf and add the amount to the debt. Periodic reminders, particularly near the tax payment deadline in late January, can help borrowers who are well-intentioned but forgetful stay current on their obligations. Prevention is always less expensive and less stressful than resolution.

What Happens If You Do Nothing

The Escalation of Tax Delinquency

If delinquent property taxes are not addressed, the situation escalates predictably and dangerously. Penalties and interest accumulate monthly, increasing the total amount owed. After a period that varies by jurisdiction, the taxing authority refers the account to a delinquent tax attorney, adding a 20 percent collection penalty. The attorney files a tax foreclosure suit, adding legal fees and court costs. If no one pays the taxes or contests the suit, the court issues a judgment authorizing a tax sale. The property is sold at public auction, and the proceeds are used to satisfy the tax lien. Your deed of trust lien, regardless of its priority against other private liens, is subordinate to the tax lien and may be extinguished entirely by the tax sale. If this happens, you lose your entire investment in the note — not because the borrower stopped paying you, but because the property taxes went unpaid long enough for the taxing authority to take the property.

Why Inaction Is the Worst Response

The escalating nature of tax delinquency means that every month of inaction makes the situation worse and your options fewer. The delinquent amount grows, the legal complications increase, and the note's value on the secondary market declines. Note holders who discover a tax delinquency and respond immediately — by paying the taxes, demanding payment from the borrower, initiating foreclosure, or selling the note — protect their investment and preserve their options. Note holders who discover a delinquency and do nothing, hoping the problem will resolve itself, often end up in the worst possible position: a tax suit is filed, the note's value has been severely diminished by the growing tax lien, and the options for recovery have narrowed to expensive legal battles or accepting a deeply discounted note sale.

Ready to Sell Your Note?

If you are dealing with a land note where property taxes are delinquent in Texas, Longhorn Note Buyers can help you navigate the situation and convert your note into cash. With over $46 million in Texas notes purchased since 2007, a 100 percent close rate on every deal quoted, and extensive experience with tax-complicated notes, Longhorn provides the expertise and decisiveness you need in a difficult situation. Founded by Nick McFadin — buying notes since 1983 — and partnered with Sandy McFadin since 2013, Longhorn Note Buyers is based in San Antonio and works exclusively in Texas. Call (210) 828-3573 or visit longhornnotebuyers.com today for a free, no-obligation quote within 24 hours. Do not let delinquent taxes erode your investment — take action now and find out what your note is worth, tax complications and all.

Frequently Asked Questions

Can the taxing authority really take the property even though I have a deed of trust?

Yes. Texas property tax liens take super-priority over all other liens, including first-position deeds of trust. If property taxes remain unpaid long enough, the taxing authority can file a tax foreclosure suit, obtain a judgment, and sell the property at a tax auction. The tax sale can extinguish your deed of trust lien entirely, leaving you with no security interest in the property. This is why delinquent property taxes are one of the most serious threats to a Texas land note holder's investment and why prompt action is essential when a delinquency is discovered.

How do I find out if the property taxes on my collateral are delinquent?

Most Texas county tax assessor-collector offices maintain online databases where you can search for any property by address, owner name, or account number. You can check the current tax status, the amount owed, and whether any delinquent amounts are outstanding. If you do not have the property's tax account number, you can usually search by the property address or the borrower's name. Checking the tax status at least once a year is a prudent practice for every Texas land note holder. If you use a professional loan servicer, ask whether they include tax monitoring as part of their service.

Should I pay the delinquent taxes myself before selling the note?

It depends on the amount and your financial situation. Paying the taxes before selling removes the super-priority lien and can improve the note's value by more than the amount you spend on taxes, because the buyer no longer needs to discount for the tax risk and resolution costs. For small delinquencies — a few hundred to a few thousand dollars — paying the taxes before selling usually produces a better net outcome. For large delinquencies, the calculation is less clear, and you should compare the cost of paying the taxes against the improvement in the note's sale price. Getting a quote from an experienced buyer both with and without the tax delinquency resolved can help you determine the most cost-effective approach.

How much does a tax delinquency reduce my note's sale price?

The reduction is generally equal to or slightly greater than the total amount of delinquent taxes, penalties, and interest. A note buyer will subtract the expected cost of resolving the tax issue from what they would otherwise pay for the note. For example, if your note would be worth 40,000 dollars without the tax issue and the delinquent taxes total 4,000 dollars, the buyer might offer approximately 35,000 to 36,000 dollars — the 4,000-dollar tax amount plus a small additional margin for risk and resolution costs. The exact impact depends on the specific circumstances, including the size of the delinquency relative to the property value and note balance.

What if both the property taxes and the note payments are delinquent?

If the borrower has stopped paying both the note and the property taxes, you are dealing with a compound problem that requires prompt attention. The note is non-performing, which reduces its value on the secondary market, and the property taxes are creating a super-priority lien that threatens your security interest. In this situation, selling the note to an experienced buyer who can handle both issues simultaneously is often the most practical option. The buyer will factor in both the non-performing status and the tax delinquency when pricing the note, but the resulting offer still provides you with immediate cash and eliminates all future risk and cost. Attempting to resolve both issues yourself — foreclosing on the note while managing the tax delinquency — is time-consuming, expensive, and fraught with legal complexity that an experienced buyer like Longhorn Note Buyers is well-equipped to handle.