We at The Deed XChange™ are happy to answer your questions about investing in tax deeds.
1. What are tax deeds?
When a county or local municipality issues a lien against a property because the property taxes have not been paid. That lien can be sold to an investor as a tax certificate. Once that lien has been held for a period of time, which varies state to state, the holder of the certificate can enforce the lien. This enforcement is commonly referred to as a tax foreclosure. The result of a tax foreclosure is the issuing of a tax deed. The process of tax foreclosing also varies state to state. However, the basic result is that an investor pays all the back taxes, along with the accrued interest and penalties and is given a tax deed.
2. Why buy tax deeds?
You can own property at a significant discount! Buyers of properties sold at tax deed sales often buy the properties for pennies on the dollar. When you buy properties low you have many options that may include: a primary residence; fix-up and sell for retail profits; holding long-term for rental income or quickly selling for a profit to another investor. Having accurate information and a good plan can make this type of investing extremely low risk with high returns.
3. Who holds tax deed sales?
In many locations, the tax deed sale is run by the Clerk of the Circuit Court. In some larger locations, there is an actual tax deed office. The tax deed sale can also be conducted by the sheriff and also outsourced to law firms.
4. When are tax deed sales conducted?
The date time and place varies from place to place. Just about all must be posted at least once in the legal section of a local newspaper. However, often these newspapers have limited circulation. The best way to know is to read ALL the rules and terms of bidding for the location you want to bid and buy. If you are bidding locally then a trip to you friendly courthouse is a good idea.
Some of the locations we have found are:
- County Courthouse steps
- At the actual property
- In government conference room
- An attorney’s office
5. What is needed to bid?
I hate to say this again, but each location has different requirements that may include:
- Proof of ID like a Driver’s license to get a bidders number
- Advance registration either via phone or online
- Providing a deposit
6. How often are tax deed sales held?
Each location has different sale dates, but it is safe to say that there is a tax deed sale that takes place every day in the U.S.
7. Are tax deeds free and clear of all liens, i.e. mortgages?
Generally speaking yes. If there is a mortgage company with registered lien to the property being sold, rest assured they have had many notices that the sale is going to take place. As a result, a large percentage of mortgage companies will keep paying the taxes until they sell them so they do not lose their entire investment. However, there are many properties that are sold for back taxes that were owned free and clear and did not have a mortgage.
There are a number of liens that are superior which can survive the tax deed sale that you as a potential buyer must beware because you will inherit these liens. They include liens, judgments or encumbrances levied upon the property owner(s) by a government entity. The most common are:
- Environmental liens from the city, count, parish etc..
- Special assessments for water or road maintenance
- IRS liens, but there are exceptions
- Unpaid child support
- In some instances HOA liens, including attorney fees, penalties and interest.
This is why the due diligence phase of tax deed investing is so very important and cannot be omitted, unless you have money to burn.
8. What due diligence is required to buy a tax deed?
At a minimum a potential buyers should:
- See a copy of the tax deed they are intending on buying
- View the properties legal information as recorded by the tax assessor and tax appraisers offices
- Current pictures of the property, preferably inside and out
- A conservative estimate of the after repaired value of the property
- An idea of what it will take to repair the property or in some cases demolish
- What if any liens or encumbrances survived the issuing of the tax deed for each owner
- An assessment of the neighborhood
Buying a tax deed property is hardly without it’s risk and rewards, Contact us for further guidance or assistance.