The legal hurdles of a Tax Sale.

Legal Research-

Now that you have found property that the county plans to sell, there’s leg work to be done. Your very first stop after confirming the upcoming sale should be a land title company. You’ll need the properties legal description at a minimum, but the address and the current or previous owner will help. This is the first time you’ll have to start risking money, but this step will ultimately protect you down the road. Some will say that you don’t need to do this before purchasing the tax lien, but you absolutely should! Some properties can have multiple liens that may or may not discharge on the sale of the property through the collector’s office. It’s on you as the buyer to know what the legal status of the property is. I usually try to accomplish this as soon as I find a property that is on the upcoming list for our area. The cost of a title search will vary a lot depending on your location, and the extent of what they have to do for it. Generally around here it’s roughly $300.00 per parcel.

What you’ll learn from the title search. You will know for sure the legal owner of the property, this is information you will need down the road. You will get a list of any legally filed leans on the property. Bank liens, credit card liens, any type of financial institution that can put one on may have at some point in the past. Of course, the best result is that you get a clear title search with a single owner or a married couple owning it. If you get results that have a lien, there’s a couple of steps to take quickly. First, determine what the status of the owner is. Are they deceased and the descendants aren’t local to the area, therefore not interested in paying the taxes and upkeep? Is it a trust that owns it after the death of the original owner? What you’re trying to gauge is the likelihood that someone will want this property. All of this impacts how you go about talking to the lien holders. Once you know about the owner’s status, start looking up the listed lien holders. Local first, as smaller, local companies tend to be less agreeable about letting go of a lien than the large, national companies that can write it off as a tax loss.

Your discussion with any local lien holder should be in person if at all possible. You want to explain that you found the property is going to be sold by the county and you have an interest in buying it. The title search indicated they have a lien and you would like to know if they would discharge that and provide legal documentation of it should you successfully purchase it. It may be that the lien is for something that is still at the property, equipment, a mobile home, a multitude of things. If that is the case, offer to have them take that item from the property if you buy it, but get it in writing that if they reclaim the property they will discharge the lien, a notarized document at a minimum for this. Follow that model for each lean you find that is local to the property. Larger, national companies will release leans many times when they know the status of the property. It may still be that they would want to reposes something that is there, and you should strike the same deal with them. It’s also possible the lien was actually supposed to have been released after paying off a loan and never was. It’s all in the details of asking questions, taking notes and getting things in writing. Having signed lien releases before purchasing any property would be the ultimate goal. As an example, I bought a few residential lots some years ago. The only lien-holder was a large lending institution. It took several calls to get the right person, but they said it was for a mobile home on the property. To their surprise, it had been removed at some point and no one seemed to know where it went. All it took to get the lien release was to send photos that included the street signs, and overview from a mapping service, and they sent a lien release. All before I bought the property.

There’s no doubt that this is the start of some time and money investment to get a property. Most of these steps though still won’t add up to the normal monetary expense of purchasing on the open market. At this point in the process you are likely about 3 weeks into working out details, and have a solid grasp on what property you will go after. There’s a few things to do before the sale though….

Before Tax Sale Day

It’s time to go back and talk to the collector. Most will require you register for the auction a few week ahead of time. This is so they can be sure you meet all the requirements to buy. You must be in good standing with the county, which really just means all your personal taxes are up to date. They will explain to you how they will accept payment, what happens the day of the sale and so forth. Several of these forms will likely need to be notarized when you sign them, after all you are basically entering into a contract with the county when you buy the tax lien from them, and there are benchmarks that must be met after the sale. Once your done with sign up, make sure to return it before the deadline.

Prepare you finances well ahead of time. Just because the property you like only has say, $2,500.00 in back taxes and fees associated with it, there is no guarantee you will buy it for that. This is, after all, an auction, and you may face competition from neighbors, estranged family, or a member of the owning trust that wants it. There is no upper limit on what the property can sell for, only the minimum bid that is listed on the sale sheet. I think of all the properties I’ve bought in this way, half were bid higher than the minimum and the rest sold without competition. You must pay the entire sale price the day of the sale, so if you have made arrangements with a lending institution, it’s important that they understand you will be paying prior to leaving the auction. It is up to you to provide any money required by the lender for down payments, etc to secure a loan. The tax collector will usually accept cash, check or card.

In part 3 we’ll discuss sale day, and what comes after you’ve bought property. In the week or two leading up to the sale, it’s important to keep track if the offering list has changed. The property you like may be removed if the taxes are paid, or other properties could be that increases interest in your primary target. For this reason it’s good to have a secondary property researched if there is one you like. Tax sale lists change frequently, and the time and money you’ve spent so far can be all for naught in a blink. That’s unfortunately part of the process, but, if you’ve picked a property that has few interested parties nearby, you’re luck may hold out.