It’s tax sale season and this time of year brings us more than a handful of clients who want to find good property at an exceptional value, whether to use as a personal home or as investment property. More often than not, however, we find ourselves being a killjoy when we start answering questions and explaining the intricacies of the tax sale process. Far from being a “gold mine” as one potential tax sale buyer put it, the tax sale process can in fact be rewarding for those who are willing to accept it for what it is, with all the legal warts that entails.
What Exactly Is a Tax Sale?
Let’s explain what a tax sale is: it is a procedure by which the local taxing authority sells real estate owned by one party to another party for the amount of unpaid taxes in a given tax year. The “title” that a tax sale purchaser gets is just that – a tax sale deed. A tax sale deed is not the same as a typical deed that one gets when they show up to our office to purchase a home. It does not give the tax sale purchaser full ownership of the real estate “bought” at tax sale – it merely gives them a right to be redeemed and, after the passage of a certain amount of time, the right to have their tax deed judicially recognized.
Judicial recognition of a tax sale deed will give the tax sale purchaser certain rights above and beyond what was had with a mere tax sale deed, but it does not give full ownership. This is because of due process and notice issues that are inherent to the tax sale process. Because of this, title insurance underwriters do not insure tax sales or even tax sales that have been judicially recognized. Because a tax sale deed is uninsurable, the ability to sell a property acquired through a tax sale is limited to a small subset of buyers in any given market.
Tax Sale Considerations
So, what does all this mean for you? It means that the tax sale process should be approached with low expectations. If you purchase a property at a tax sale, it will most likely be redeemed by the owner. When redeemed, you will be reimbursed the amount you paid, plus additional amounts. If you purchase a property at tax sale and it is not redeemed within a certain amount of time, you have the option of having your tax deed judicially recognized and to possess the property as you are able. Savvy buyers of tax sale properties can and do make money in the latter situation through rentals or even sales to other investors. If they are patient and a certain amount of time goes by, they can even petition to have their full ownership judicially recognized. But the vast majority of tax sales are redeemed and the tax sale purchaser realizes a minor return on their initial investment.
If you have any questions about tax sales, call us and we will be glad to discuss your particular situation with you in detail.
