Tax deed sale
From Wikipedia, the free encyclopedia
A tax deed sale is the forced sale, conducted by a governmental agency, of real estate for nonpayment of taxes. It is one of two methodologies used by governmental agencies to collect delinquent taxes owed on real estate, the other being the tax lien sale.
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[edit] Tax Deed Sale Process
Real estate taxes are considered delinquent if not paid within a specified period of time. If the taxes are not paid, after notice is given to the property owner (as well as others holding an interest in the property, such as a mortgage company), the property is sold at public auction to the highest bidder. Some jurisdictions require notice only, others requiring filing a judicial action to commence proceedings.
The minimum bid is generally the amount of back taxes owed plus interest, as well as costs associated with selling the property. In the event the property is not purchased, title reverts to the government, and the property may be purchased by any member of the public in a private transaction.
In most cases, the jurisdiction will only provide a quitclaim deed at the sale, which is usually insufficient for title insurance. Therefore, a "quiet title" action must be filed in court to obtain an insurable title.
Some jurisdictions allow a "redemption period", whereby the former owner has a specified amount of time to reclaim the property by repaying the amount bid at auction plus a penalty (for example, Texas allows a 6-month period in most cases, with a flat 25% penalty to be added to the amount paid at sale). As such, purchasers of properties at tax deed sales are cautioned not to make major improvements on the property until after the redemption period has expired.
[edit] Hazards of Tax Deed Sales
The popularity of tax deed and tax lien sales has spawned an entire industry of "experts" claiming to have inside knowledge on how to obtain valuable properties (which, of course, they are willing to sell to gullible members of the public, at highly inflated prices, through their controlled channels). These "experts", however, generally do not explain the pitfalls of tax deed sales.
The primary hazard is that the properties being sold generally are not that valuable. In most cases, a valuable property will be encumbered by a mortgage. Since in most jurisdictions a mortgage would be wiped out at a tax sale, the mortgage company (prior to the sale) will generally pay any delinquent taxes owed and recoup its costs against the mortgagee, thus removing the property from the sale.
The informed investor will do their due diligence on each property that they are interested in buying. Although the Internet can provide considerable information on a property, a physical inspection of the site itself is strongly encouraged.
In the rare event a valuable property is not encumbered by a mortgage, experienced real estate investors with access to large amounts of capital will quickly bid the price beyond the reach of the "average" individual investor. Properties remaining will generally consist of marginal or worthless properties of little or no value to anyone (save, perhaps, a neighboring landowner).
[edit] References
Don Sausa,. Complete Guide to Real Estate Tax Liens and Foreclosure Deeds : Learn in 7 Days. The Vision Press. ISBN 0-9788-3468-2. OCLC 77059156.
Larry B. Loftis,. Profit by Investing in Real Estate Tax Liens : Earn Safe, Secured, and Fixed Returns Every Time. Dearborn Trade, a Kaplan Professional Company. ISBN 0-7931-9517-9.
