Today I’m answering your questions about buying tax delinquent property before auction, and the topics I’m going to cover are:
- The Lucrative Real Estate Niche of Tax Delinquent Property
- What Happens to Real Estate With Unpaid Property Taxes?
- Buying Property From the County at a Tax Auction
- The Risks of Buying Tax Sale Properties at a County Auction
- The Risks of Buying Tax Deed Properties Before the Auction
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The Lucrative Real Estate Niche of Tax Delinquent Property
I’m Ted Thomas, and today I’m answering your question about buying tax delinquent property before auction.
For over 30 years, I’ve been involved in a subset of traditional real estate called tax lien certificates and tax deeds. This subset is the same type of real estate, mostly homes, small apartments, and small farms, except that the property owners have defaulted on paying property taxes.
The seller of tax delinquent property is the local county government, and the county sells properties for pennies on the dollar via an auction process.
All 3,000+ counties are authorized to sell delinquent tax defaulted property and start the bidding at just the back taxes, which means the bidding could start at 10 to 20 cents on the dollar of the property’s tax assessed value.
What Happens to Real Estate With Unpaid Property Taxes?
When property owners fail to pay property taxes, it causes big problems for the local government because property tax revenue is how the county pays its official expenses plus employees, like school teachers, police officers, and firefighters.
The consequences of not paying property taxes are severe.
If the tax is uncollectible, the county treasurer will present a notice of default to the property owner, then ultimately, the treasurer will seize the property for unpaid property taxes, and the county will then become the owner.
Buying Property From the County at a Tax Auction
Next, the property will be set for auction at a county tax defaulted auction sale. The county will advertise the auction on the county website and in the local newspapers.
This process is legally required and referred to as due process of law. It’s required prior to the confiscation of the property, and of course, prior to the actual auction.
Certain investors see this due diligence process as an opportunity to plan purchases for pennies on the dollar, as the county will announce the sale of properties for very close to the delinquent back taxes.
The tax collector’s office and the treasurer will determine the auction rules which they will print on their website and make the public aware of in any brochures they print. The process is a lengthy legal process, and it is all open for review.
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The Risks of Buying Tax Sale Properties at a County Auction
Properties are sold “as-is.” No warranties. At the completion of the auction or shortly thereafter, the county will issue a sheriff’s deed which will have the narrative wording of a quitclaim deed.
Rarely will the buyer be allowed to inspect the interior of the property they are purchasing. The point I’m making is that the risk of damage is all on the shoulders of the buyer. The county does not warranty the property or the title to the property.
Unfortunately, many bidders purchase at auction without taking the time to physically inspect the property.
Tax defaulted properties could be junkers that you shouldn’t buy. However, they’re usually merely used and abused and just need clean-up to be ready to be resold or moved into.
Not observing or inspecting prior to the auction is a big mistake. Boots on the ground and seeing the property is mandatory from my perspective.
Anxious buyers interested in making big money in many instances fail to review the property records to be assured that all liens are cleared at the auction.
The Risks of Buying Tax Deed Properties Before the Auction
Now, let’s talk about buying tax delinquent property before auction. This is a high-risk purchase. When you buy before the auction, you purchase everything, including any liens, judgments, and attachments.
At the tax lien auction, the law allows for the mortgage or deed of trust loan to be canceled and extinguished. When buying tax delinquent property before auction, the mortgage remains and many other judgments and liens remain in place.
Unfortunately, anxious auction buyers trying to outsmart the other bidders may purchase from the seller prior to the auction. In other words, the loans will not be extinguished as the result of a before-auction purchase.
It’s critical for a buyer to understand the lien laws and the power of the treasurer’s auction and sale. Pre-auction the buyer receives everything that is on or exists on the title records. It’s not unusual for buyers to purchase property and find out when it’s too late that there are judgments, liens, and attachments that will be enforced.
We hope you enjoyed Ted’s lesson, “Is Buying Tax Delinquent Property Before Auction Risky?”
In summary, buying tax delinquent property before auction can be very hazardous to your pocketbook. The new buyer will spend time, money and effort attempting to clear any old loans, liens, judgments, and attachments.
If you purchase at the auction, most, if not all, encumbrances should be cleared. The treasurer is a government official following the law which is clearly outlined in the statute books created by the legislature and governed by the state.
The county treasurer has the power to not only confiscate the property but to eliminate the deed of trust loan or mortgage and many other liens.
If you’d like to know more about tax delinquent property investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
Learn how to reap huge rewards from tax lien and tax deed investing! Get started today by taking advantage of this Free Gift from Ted. Act now, it costs you nothing and will give you a big head start!
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.