How municipal tax arrears escalate
Unpaid property taxes accrue interest and penalties set by the municipality, and after a period of continued non payment, typically around three years in Ontario, the municipality can register the property for a tax sale process, which is separate from a mortgage power of sale.
Paying arrears directly
The most straightforward solution is paying the arrears directly, sometimes through a payment plan arranged with the municipality's tax department, which many municipalities offer before pursuing more serious collection steps.
Using home equity to clear arrears
If a lump sum is not available, refinancing or taking a second mortgage against home equity can provide funds to pay off tax arrears in full, stopping the accumulation of interest and protecting the property from further municipal action.
- Municipal payment plans as a first option
- Refinance or second mortgage for a lump sum payout
- Priority given to resolving before tax sale registration
Why lenders care about tax arrears
Property tax debt actually ranks ahead of most mortgages in priority, meaning mortgage lenders pay close attention to whether taxes are current. Some mortgages include tax payments as part of the monthly payment specifically to avoid this risk going forward.
Frequently asked questions
- How long can property taxes go unpaid in Ontario before serious action is taken?
- Generally around three years of unpaid taxes can lead to tax sale registration, though interest and penalties accrue well before that point.
- Can I include future property tax payments in my new mortgage?
- Yes, many lenders offer a tax portion added to your monthly mortgage payment that they remit to the municipality directly on your behalf.
- Do property tax arrears affect my credit score?
- Not directly in the same way as a missed mortgage payment, but unresolved arrears can eventually lead to legal and financial consequences that do affect your overall financial standing.