Buying at Tax Sale

kemrefarms · #1 10/14/07, 12:42 PM

Has anyone bought property at a delinquent tax (county) auction sale? There is one coming up and I am in the market for property right now. Where exactly can you check the background of the property, say for liens etc? Anyone havng any experience with this, I would appreciate your information, thanks.

texican · #2 10/14/07, 12:49 PM

I'd stop by the courthouse and check in the land records first. If you're lucky, the properties will be digitized and available on the computer. I had to check on some of my sisters property recently, and the land in question was available on their computer system.... and all the liens against it were listed... sure saved a lot of time.

No matter what, I'd recommend title insurance, so you don't lose your money... had a cousin who bought land at a tax sale, (his brother's property) and there were no apparent liens... a few years later, the IRS contacted him and informed him they had a lien on the land for more than he paid for the land. If he'd paid the several hundred for title insurance, he'd've known this upfront... Said cousin wasn't too smart, for a few years later, he bought some more of the 'brother's land' on the courthouse steps, again without title insurance, and again had to pay off IRS owed moneys...

My understanding of tax sales... also allows the original owners to pay the taxes, after the sale, and regain their property... for a certain amount of time... If that fact is true, I'd be cautious.

palani · #3 10/14/07, 01:59 PM

Tax lien auction --- just another phrase to describe fraud.

The state can only sell the interest they have in the property and that is an equity interest through taxes owed. Land is granted and never sold. The primary disposition of the land is through land patent which represents a contract that never terminates.

So the buyer of the lien (not the land) gets to charge an abnormally large amount of interest (2% per month is typical, 24% per year) and after two years failure to buy back the lien the guns come out and the proper owner is deprived of the possession of his property (although he is still the owner) by the sheriff.

If you want something for nothing try the lottery.

quietstar · #4 10/14/07, 02:13 PM

My suggestion is to get all the LOCAL information you can. Texican is right about unexpected pitfalls. In Texas, it's about impossible to get Title Ins. within 4 years of the tax sale because of a little known statute. It allows the origional owner to file an action claiming proper procedures were not followed in the Tax taking or sale and recover the property. Buying at Tax sales and some foreclosure auctions/sales is a very risky time to neglect due dilligence...Glen

anniew · #5 10/14/07, 03:05 PM

Since no one apparently responded from your state, their answers may not be correct. You'll need to check with your officials.
However, if you don't know how to do a complete title search yourself, you are asking for trouble. In my state, it is more than looking at the computer. Also, there are sales (forget their name) after two unsuccessful tax sales in PA which sell the land and all liens are removed...just to get the property back on the tax rolls...and a further step gives the tax people the right to sell to anyone for any amount of money, like $5 if it hasn't been sold through the other options.
You gotta know YOUR states rules.

OkieDavid · #6 10/14/07, 05:21 PM

From the "other" perspective- It's really not a bad way to invest some capital. If you would rather have 1000 dollars sitting in the bank earning 2-5%, have at it. I'll take that 1000 and buy tax liens and earn (here) 19-21% for the same duration and that is taking for granted the landowner buys back the lien, if he doesn't I'll spend another 100-500 and OWN the land and improvements through a Tax Deed filed through the courts. Either way, Annie is correct- check with the equivalent of your county Tax assessor on the rules/procedures for your state.

Hoop · #7 10/14/07, 05:35 PM

Tax lien sales are different in the various states. In Wisconsin, any property purchased at a tax lien sale is FREE AND CLEAR of ALL liens & encumbrances. You own it. Period. Free & clear. And as long as you pay your property taxes, you will continue to own it. And never will the prior owner/prior lienholder be able to make any legal claim against the property. The prior owner forfeited their property rights when they failed to make property tax payments for 3 years.

Other states aren't quite as staightforward. There may be hidden liens. Even worse, the prior property owner may be able to "repurchase" the property sometime in the future. Realistically, this type of ownership is sketchy, at best. You may own it......yet someone else may have a stronger legal claim. IMHO, this is a bass ackwards system.

Check to see the laws in your state. You don't want to waste your time if your state has a mickey mouse system of laws in place regarding tax liens.

If in fact your state has straightforward laws on the books, there are many bargains out there. My father purchased a vacant lake lot via the tax lien process in 1994 for a mere $5500. Today, its value is $70,000.
Houses are far more complicated because you're buying as is, and generally you have no way of knowing if the water delivery system, septic system, heating/cooling system, electrical system, etc is up to date and operating properly.

Dutchie · #8 10/14/07, 05:37 PM

Quote:

Originally Posted by OkieDavid

From the "other" perspective- It's really not a bad way to invest some capital. If you would rather have 1000 dollars sitting in the bank earning 2-5%, have at it. I'll take that 1000 and buy tax liens and earn (here) 19-21% for the same duration and that is taking for granted the landowner buys back the lien, if he doesn't I'll spend another 100-500 and OWN the land and improvements through a Tax Deed filed through the courts. Either way, Annie is correct- check with the equivalent of your county Tax assessor on the rules/procedures for your state.

19-21%????

It is 8% here in Pawnee Co.

OkieDavid · #9 10/14/07, 06:18 PM

Quote:

Originally Posted by Dutchie

19-21%????

It is 8% here in Pawnee Co.

Should have clarified better, my bad. 8% times the prorated amount for three years which is how long the homeowner has to re-claim/re-pay the lien. 8% x 3 Years= 24% over the three year LIFE. My experience has been most are re-claimed around 2 years 5 months to 2 years 8 months (hence the 19-21%). Either way it beats the heck out of a 2% CD. Sorry for the confusion and "tricky" accounting LOL.

Rory · #10 10/14/07, 06:33 PM

There are tax deeds and tax liens and hybrids. Your county clerk will know how to help get some info to you. DO research!

Sausa has a good beginner's book on it from the investment point.

Michael W. Smith · #11 10/14/07, 07:04 PM

Well, our county actually has 3 different sales.

The first one is the sheriff's sale which is usually people who have bit off more than they can chew on land & a house and fell behind in their bank payments. Alot of times, you can find out how much is actually owed on such a loan and as long as you bid that much everything is fine. The bank gets their money - they don't really care that the property is worth more than what was owed. They just want their money and don't want to be in the "property business."

The second one they have is tax delinquent sale. Here in PA, if people don't pay their property taxes for 2 or 3 years, it ends up in this sale. The tax owed and added fees are already in the bid price - you must begin bidding at $500.00 or whatever the amount for the previous tax is. If there are liens on it, that is YOUR problem. It's listed in the paper and repeated at the sale - you better know what you are buying because you are buying as is. For instance - some of the things being sold are mobile homes only - the county does not guarantee the mobile home is actually there, or what is on it. There might also be a property with a "blighted" or condemned house or building. You buy it "as is" - and if it is condemned, you will now be responsible for cleaning up the condemned property yourself, or pay for the county to come in and do for you. As for the people "coming back" on you to claim ownership - again in Pennsylvania - the people have to make it to the tax claim office before the closing time to arrange payment in full or a payment schedule. If they do not, they have no recourse. Once you own it, YOU OWN IT, and the previous owners are simply out of luck.

The third one they have is the repository sale. Once the delinquent sale is held and have no bidders, the property eventually ends up in the repository sale. At the sale, you bid on the property and the highest bidder gets it. At this sale, there are no back taxes, liens, or anything - the county simply wants the property back on the tax records and taxes being paid.

Find out for sure which sale they are having, check out the property - actually drive past it to see what exactly you may be buying. Check for liens, etc. It is buyer beware - but you can make out.

For instance, once the repository sale was over and no one bid, (again in our area) you can put a bid in on it. I bid $1.00 for 100 + acres of coal rights. After I owned it for some time, one of the property owners on the 100 + acres (the actual property had been divided up), came to me to find out if I did indeed own the coal rights. He had been told when he bought the land that the coal rights were with it (but he was lied to). He happily paid me $1000.00 for those coal rights!

Dutchie · #12 10/14/07, 07:07 PM

Quote:

Originally Posted by OkieDavid

Should have clarified better, my bad. 8% times the prorated amount for three years which is how long the homeowner has to re-claim/re-pay the lien. 8% x 3 Years= 24% over the three year LIFE. My experience has been most are re-claimed around 2 years 5 months to 2 years 8 months (hence the 19-21%). Either way it beats the heck out of a 2% CD. Sorry for the confusion and "tricky" accounting LOL.

OK. In Pawnee Co it is 2 years, not 3 ......

Which county are you in?

haypoint · #13 10/14/07, 08:27 PM

While it is a way to get a lot more interest on your money than in a bank, sometimes there are delays in getting your money where you don't earn any interest. After the owner pays the back taxes your interest stops and then you have to wait for the state to get their paperwork in order and then they'll want you to send your SS number so they can be sure you'll claim the interest income. So plan on a few weeks of no interest. Another downside is that when your money is in a bank you can go get it if you need it, not so if it is tied up in a tax sale. Properties that have any real value get the taxes paid and revert to the owner in most cases. You can pick up odd ball pieces that are of value to those that join that parcel. If is really something you'd be interested in, get the landowners name and adress and ask about buying it. Someone that is far behind in their taxes might be motavated in cutting you a bargan.