Buying Real Estate at Tax Sales
Real estate can be sold for nonpayment of property taxes. Properties with first mortgages are not usually sold at tax sales because mortgage companies pay taxes if they must to protect their interests. When a tax sale does occur, the high bidder wins a tax certificate, not an immediate deed. The certificate is subject to a redemption period, which gives the owner time to pay the taxes before the property is lost. The time of redemption varies from state to state.
An owner who redeems the property must pay the holder of the certificate the amount paid at auction, plus a percentage that is in part dependent on the amount of time it took the owner to pay. If the owner chooses not to redeem the property during the redemption period, the holder of the certificate receives a deed to the property.
A tax sale generally wipes out all other liens, so the title is delivered free of liens. However, the sale does not wipe away other problems with the title — things such as possible encroachments and easement issues. Only a full title search and in-depth look at the property will tell you if there are additional problems that must be considered.
A former owner who does not redeem the property could initiate a lawsuit at a later date, stating that the tax sale was not handled properly. That action can affect your ownership and create legal fees.
Laws regulating tax sales differ, so it's critical for you to study the practices at your location. Talk to staff at your county or city tax collector's office to find out when sales are scheduled and what happens before and after the sale. Talk to other people who have bought property at tax sales to see if they are willing to help you. Talk to a local real-estate attorney about the pros and cons of buying real estate at tax auctions.
The staff at your county courthouse will help you learn to research properties. Ask as many questions as you can think of regarding issues that affect titles. Find out how to look back at public records to discover possible problems. You may not ever become an expert title researcher, but you'll learn enough along the way to know when professional help is needed.
Sometimes you have to take a gamble, but don't be afraid to proceed with caution until you recognize which gambles are the ones with the best chances of paying off.
