I’m Ted Thomas, and I’ve been involved in tax defaulted property and tax lien certificates for the past 30 years. If you’re just getting started, you’ll find this subject interesting, and if you’re an investor, you will be fascinated.
Today I’m answering your question, “What are tax deed sales?” and the topics I’m going to cover are:
- A Tax Deed Refers to a Legal Process
- What Are Tax Deed Property Auctions?
- Why Tax Defaulted Properties Are Sold at Public Auctions
- Buying Tax Delinquent Property at Tax Deed Sales
- What Is a Redeemable Deed State?
- How to Profit from Tax Defaulted Property
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A Tax Deed Refers to a Legal Process
The United States is divided into over 3,000 counties. These are individual entities, and all will sell tax deeds. Many will sell tax lien certificates, and they all will have tax defaulted auctions.
Today we’re discussing, what is a tax deed? I’m not an attorney or a real estate broker, so you’re learning from an investor and author. I’m not giving you legal advice or guidance.
A tax deed refers to a legal process that takes place when the owner of the real estate defaults, that is fails, to pay property taxes that are owed to the local government. In other words, in all 3,000+ counties or municipalities these taxes are owed.
A tax deed gives the government authority to sell the property to collect delinquent taxes.
What Are Tax Deed Property Auctions?
What are tax deed sales? Tax deeds are normally sold at tax deed sales which are public auctions. Anybody can attend the auction.
Tax deeds are sold to the highest bidder. For clarity, the county is selling a tax delinquent property at auction, and the document that will be used for the transfer from the government to the buyer is referred to as a tax deed. The county gets dollars, and the auction buyer gets property.
There are other consequences, like what happens to existing mortgages, deeds of trusts, and other attachments to the property that might involve owing money to heirs.
Why Tax Defaulted Properties Are Sold at Public Auctions
What is going on here? All states have requirements for the counties to collect property taxes, and laws have been passed requiring property owners to pay property taxes or lose the privilege of property ownership. That is the reason for tax deeds.
If the tax is uncollectible, the treasurer is authorized to seize the property, remove the owner or tenant, and sell the property to collect the delinquent back taxes. The sale takes place at a public auction which could well be on the courthouse steps.
Tax defaulted property auctions will be announced on the county website and in the local newspaper. The auction is a tax deed sale.
Buying Tax Delinquent Property at Tax Deed Sales
For example, assume the tax assessed value of a property is $100,000, and the delinquent past due taxes are $7,500. The highest bidder in our example bids $25,000. The county will transfer the property to the new buyer, and usually issues a quitclaim deed of some type.
Tax deeds transfer the owner’s right, first of all to the county, then the county transfers their right via the auction to the highest bidder.
Different states will have different values, and it’s important for the investor to understand the condition and property values.
The revenue that’s generated at a tax deed property sale will pay the county’s bills. These bills are paid with property taxes. There are also other consequences that a tax deed, once issued, will clear from the property.
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What Is a Redeemable Deed State?
What are tax deed sales with a right of redemption? First, you will need a basic understanding of redemption periods.
What is a redemption? When a property owner has failed to pay property taxes, in certain states which sell redeemable deeds, like Texas, Georgia and a few others, the county treasurer auctions a deed which has a right of redemption.
This means that the property owner who failed to pay property taxes may have a chance to redeem their property, even though it was sold by the county treasurer at a public auction.
Redeemable Deeds in Texas
Texas sells tax deeds at auction, however, the deed is redeemable. The process is simple, the auctioneer sells a redeemable deed, and to recover the property, the defaulted property owner has 180 days to come forward and pay 100% of what the auction bidder paid plus 25%.
Redeemable Deeds in Georgia
A similar system is in place in Georgia. The state of Georgia will allow the property owner up to one year to come forward and redeem their property. In the state of Georgia, the defaulted owner, like in Texas, can come forward on any day and redeem.
In Georgia, the minimum penalty is 20%. If the property owner redeems in year two, it’s 30%. In year 3, it’s 40%, and in year 4, it’s 50%.
How to Profit from Tax Defaulted Property
What is going on here? 30-years ago, I also asked, “What are tax deed sales?” and discovered this investment process. It was fascinating to learn about it. Research showed it was traditional real estate that had gone into default.
Newcomers should realize that this business has been available for over 200 years and will require study.
In a local county with only a small population just north of Tampa, Florida, my student investor only invested $9,000 at a tax-defaulted auction. The property was a used and abused single-family home.
The tax assessor valued the property at $91,000. Using techniques he learned in our training, my student checked more thoroughly and found other comparable values, including one at Zillow which determined the value at over $200,000.
My student sold the property to a tenant for $5,000 down with an option to buy for a purchase price of $140,000. Ask yourself, would one deal like that a year make a difference in your life?
Conclusion
We hope you enjoyed Ted’s lesson, “What Are Tax Deed Sales?” about the 2 main types of tax deed auctions.
What are tax deed sales? Tax deed sales are tax delinquent property auctions where real estate is sold mortgage-free for mere cents on the dollar. Opening bids begin near the amount of the back property taxes, which are a small fraction of the property’s value, making it possible to purchase a property at a tax deed sale for 10, 20 or 30 cents on the dollar.
What are tax deed sales with a right of redemption? Generally, once a tax deed property is sold, the winning bidder owns it outright. However, some states, like Texas and Georgia, sell redeemable tax deeds, which give the delinquent property owner a period of time, called a redemption period, to redeem the deed by paying the back taxes plus a penalty.
If the property owner redeems the deed in a redeemable deed state, then the winning bidder receives all their money back plus a high rate of interest, which varies depending on the state.
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.
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