The Property Sold at Tax Sale
If you have ever been channel surfing at 3:00 a.m., then you may have seen a commercial or an infomercial about buying home for as little as one thousand dollars. Perhaps you thought to yourself: where are these deals and how come I’ve never seen them in my own neighborhood?
These amazing deals that you hear about on television advertisements are tax sales. That is, when a homeowner defaults on his or her property taxes and after many warnings to the homeowner and the mortgage lender, the government has the right to sell the property at a tax sale for the amount owed on the taxes.
What You Really Need to Know About Tax Sales
Perhaps you’ve heard that you can make a killing buying tax sale properties. That may be true, but you need to understand the risks involved in such an endeavor.
- Sales Don’t Happen Daily. Generally tax sales occur once a year and the prospective properties for sale will be listed on a government website.
- Right of Recision or Redemption. Despite all the warnings that the homeowner has received about a pending tax sale, most states provide a grace period after the sale in which the homeowner can get current on their payments. So even if you purchased the property at a tax sale, the previous owner still may have a redemption or recision period.
- Tax Lien vs. Tax Deed Sale. Each state has different laws regarding the timing of these sales and the sale may be a tax lien sale or a tax deed sale. Before you make a bid, understand the difference between the two. In a tax deed sale, the investor buyer purchases the deed. In a tax lien sale, the investor purchases the lien and often tries to collect from the previous owner, who wants to remain in the property.
- Mortgages. If the previous owner had a mortgage on the property, investor buyers must investigate this mortgage. While it may be wiped out by a tax sale, will the mortgagee be claiming that the tax collector didn’t alert them to the sale? Might there be some issue with the mortgages that will cloud the title?
Even though I’ve seen lots of infomercials about the benefits of investing in tax sales, I’m not sure that those advertisements mention that you cannot buy a home at tax sale and turn around and sell it tomorrow for a large profit. As with anything, there are serious risks involved in this investment. If you plan to invest a few grand in a property sold at tax sale, seek legal counsel so that you fully understand the risks versus the rewards.