Tips on Buying Land Through Tax Deeds

If you’ve purchased real estate thru tax deeds before and are thinking about buying land, you’re in luck. Tax-foreclosed vacant land is relatively easy to find with good discounts to market value if you understand the process.

If you’re not familiar with buying land through tax deeds, I have a few tips that differentiate those properties from regular foreclosures and sales.

Your normal due diligence will need to expand somewhat to make sure you fully understand the unique issues that come along with tax deeds. However, you really can find steep discounts on vacant land parcels and acreage keeping in mind the points below.

There was a reason someone didn’t pay their property taxes

It could be that the owner fell onto hard times and couldn’t pay their taxes or that the property was an inheritance to an out-of-state relative with no idea about the value of the property.

Or, it could be that there could be a zoning or even an environmental issue that seriously impacted the value of the property and the owner walked-away.

I’ve found that properties that end up as a tax deed fall into two “reason” categories: 

1. (1) The former owner couldn’t pay the taxes because of their own financial issues or 
2. (2) the former owner thought the property wasn’t worth the value of the taxes.

Like all real estate, it’s up to you to find out the issues on the property that may have caused the former owner not to keep their property taxes current. Your purchase due diligence is the same as any other type of property with one big exception…

You may not own it “Free and Clear”

That’s right. A tax foreclosure does not wipe out all liens despite its priority ahead of mortgages and private liens. There is no title insurance given at the time of your tax deed purchase. There may unresolved claims to the property – even from the former owner. Most of these claims won’t hold up but it is still up to you to defend the legal title to the property.

In most states, you have two options: file a quiet title action thru an attorney or use a tax deed title clearing service. The first is a 3 – 9 month legal lawsuit to clear the tougher title issues thru the courts. The latter takes less than two months for the 90% of deeds which the county followed their correct procedures.

You will still need to deal with any government liens on your own – grass mowing fees, demolition judgments and, the worse, EPA environmental liens. I recommend getting a title report on your property before purchase if you suspect these types of issues.

Understand the difference between and Tax Lien and a Tax Deed

If you’re new to buying land thru tax-foreclosed properties, make sure you fully understand the difference between a tax lien and a tax deed.

A tax lien is offered at auction and is simply a lien against a property where you earn an interest rate up to 24% in some states. It does not entitle you to possessing the property, contacting the owners (in some cases) or even walking on the property. Every state is different on how you can foreclose on the property to turn it into a tax deed. Your county treasurer or tax collector will have details on these liens if this is an interest to you.

A tax deed has already gone thru the foreclosure process either by the county-itself or with a private tax lien investor’s attorney. You can buy them directly from the county thru an auction or “over-the-counter”. You can also find them thru other private investors who bought them and are looking to flip the property or ended up with them thru their own tax lien.

In any case, “buyer beware” and “do your own due diligence” are the rules of the day. Spend time understanding both the property and the legal & title issues which could go along with your purchase.