Back taxes on homes is starting to become known as the investment that is making people huge gains while the rest of the economy is yet to sputter back to life. The last few articles in this series focused on are tax liens a good investment, and California tax sales. This week’s article focuses on how other people’s back taxes on homes can turn out to be your windfall. If you are interested in making double-digit profits while even some of the best stocks are making next to nothing, then read on, back taxes on homes may be just what you are looking for.
What we are looking for is a great investment opportunity that has immunity from the C-19 virus and every other factor affecting the economy. It goes by many names, and you need to start seeing how no matter if you are looking at something called a back taxes house, a back taxes home, back taxes property, it’s all basically going to fall under the same methods of getting the property.
As our previous articles about are tax liens a good investment, and buying property for back taxes has mentioned, we are talking about an exciting segment of the real estate market that is outperforming almost any other investments in the country.
Before we address where and how you can get onto this excellent investment, let’s review the mechanics of how this all works. Basically, every property in the United States has property tax on it that has to be paid, in order for the owner to retain the property as theirs. When the owner or owners fail to pay those taxes, the county which was depending on those taxes needs to do something to get that tax income coming back in.
Back taxes on homes that are not paid means no budget for police, firefighters, or any of the necessary services that hold society together. How long can the county go without those funds without doing something? That depends upon the state. Basically, it varies between two and five years. What happens then? In most cases, what the county does first is holds a tax lien auction (if it’s a tax lien state) then forecloses the property if the owner does not redeem the lien, or holds an auction for a tax deed (if it is a tax deed state.)
In the case of a tax lien county, when you buy a tax-lien certificate at the auction, you are basically investing in the owner’s delinquent taxes, but they still own the deed to their home. It is possible to end up owning the home or property by buying a tax lien, but in approximately 95% of cases, the owner redeems the lien. This means they pay the delinquent taxes, plus interest, and retain the deed to their property.
So while it is possible to end up with a property by paying the back taxes on homes, we should not consider it the most viable method of doing so. It’s a great investment, but not if you want to own properties. You would be paid interest on the debt. If the county auction sells you a tax deed, you are actually buying the deed to the house.
Back taxes on homes: amazing investments, but only for the knowledgeable
It’s important to note that at this point, you own the property, but there may still be other liens on the deed. There are many possible entities that could hold liens on your property’s deed. The I.R.S. the state, or even the county could all hold liens against the deed. The liens against the property could actually be held by any of the following:
- County or parish government.
- State government.
- School system.
- City.
- Special tax district. These can be for fire departments, business zones that are downtown, and others.
So you may have found back taxes homes at a local county auction, at a price that you were pleased with. But I would recommend you look into the back taxes when buying a house. The reason why I strongly suggest that, is that you would still be responsible for those back taxes after buying the tax deed. If that’s not enough, in any of these cases, one of several steps would have to be taken in order to turn those back taxes on homes into properties with free and clear titles. One way would be to pursue something called a “quiet title action.” This involves a court action that costs at least \$2,500.
A second way to clear the liens off the title would be via a tax deed title clearing, which will cost in the $2,000 range. It should be noted that whatever liens that were outstanding may have to be paid at this point. Both of these scenarios are important to understand for at least two reasons :
#1- Because they could significantly increase the amount you end up paying for the property.
#2- Because you will not be able to get title insurance, which means buyers cannot qualify for mortgages. This means if you bought the property with the intention of selling it, you may have a really hard time doing so.
It’s not just a matter of paying the back taxes on homes and celebrating buying a property for a fraction of its value. Now up to this point, I have focused on tax liens and tax deeds; there is something else we should look into. There is something called a redeemable lien, that’s not either one of these. What we are now talking about could be considered a hybrid between a tax lien and a tax deed.
How redeemable deeds can turn back taxes on homes into great investments:
If you purchase a redeemable deed, you are actually purchasing a deed to the property (just like a Tax Deed). However, a redeemable deed also has a redemption period (just like a Tax Lien), which makes the process a bit more complex. For a set period of time after a redeemable deed has been sold, the last owner has the right to “redeem the deed” and buy the property back. In order to purchase the property back, the prior owner has to pay the full amount that was paid for the property at the tax sale along with some costly fees and penalties (regardless of how much time has accrued during the redemption period).
If the prior owner does not redeem their deed within the specified redemption period, they will lose all their redemption rights, and the investor can rest easy knowing that they are the official owner of record.
Turning back taxes on homes into real estate deals in Florida
Using Duval County Florida as an example, the clerk’s office gives all the relevant information for what would be required to successfully attend an auction and acquire a property. Let’s see what they have to say:
Tax Deed sales happen after the Tax Collector issues tax certificates for not paying annual property taxes. This is according to Chapter 197 Florida Statutes. Tax Deeds are given out by the Clerk of the Circuit and County Court. They are issued to the highest bidder. After that, the property owner then forfeits all rights.
So in Florida at least, buying tax deeds by paying back taxes on homes means knowing the auction pro-tax liens are bid down, meaning at the auction, bidders compete for who is willing to take less and fewer interest rates on the liens. For tax deeds, bidders compete by bidding higher and higher. The Florida Statutes governing Tax Deed sales Chapter 197 require high bidders to post with the clerk a non-refundable deposit of five percent of their high bid or $200, whichever is greater.
This must be done at the time of the sale, and the deposit will be applied to the sale price at the time of full payment. Please note that deposits paid in the Tax Deed office must be made before 4:00 p.m. the day before the sale, paid by cash or cashier’s check. Failure to do so will result in being banned from future Tax Deed auctions and forfeiture of your deposit.
So in order to actually turn back taxes on homes into big profit, by taking part in the auction where you would compete with other bidders, you have to have posted with the clerk $200 or 5% of the highest bid you plan on buying, with cash or a non-refundable cashier’s check. When and if your bid wins, you have to be able to pay almost immediately. Failure to do either of these could cost you. You could not only lose your right to buy the deed, you could actually be banned from future auctions.
Jacksonville and Duval county cannot guarantee a clear title to these properties. All properties are sold “buyer beware.” It is the bidder’s duty to search the title for any liens that may be recorded against the property. All governmental liens and judgments will survive the Tax Deed sale. All parcels are sold “as-is” and are conveyed by a Tax Deed. No guarantees whatsoever are made about a parcel’s condition, title quality, etc. If you want professional services, such as “Quiet-Title” suits, they are the duty of the buyer, as are all charges for these services.
Any properties that are paid by the high bidder will be advertised one time only, and a re-sale will be conducted no later than 30 days after the original sale date. This is governed by Florida Statute 197.542(3).
All of this information and more is available at the Jacksonville/Duval County website.
Now more than ever there are great opportunities in turning back taxes on homes into extremely profitable investments, but there is a lot that needs to be learned in order to do so in an efficient, consistent, and profitable manner. I suggest you go to where I went, Ted Thomas and save a lot of time and wasted effort, and learn how to start making a huge return on your investments, no matter what the economy is doing.
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