Texas tax deed question

12 Replies

I have thought about investing in real estate for years and I'm starting to more seriously  research different opportunities.  I've read up on texas tax deeds and have a couple of questions.

1.  When a property does not have a homestead exemption in the county appraisal records, does it automatically fall into a 6 month redemption?  If it doesn't, can you define homestead?

2.  Since these are tax deeds, does that mean when the county foreclosed on the property that the title was cleared including IRS liens and other types of senior liens?

Thanks in advance.


@Mark C. these are good questions, which I have covered in some of my blogs (self promoting) sorry.  So here are the short answers.

Use the county appraisal district, in Denton County its Denton CAD. The redemption is dependent on certain exemptions being in place the date the tax suit is filed. Good luck getting exemption history from Tarrant County, they just changed computer systems, and can't tell if they have the info or not. 

With liens it's NO! Not all liens are cleared with the suit. This is very important, especially IRS liens. They are superior lien to a county tax lien; therefore, they stay and you would inherit the debt.

To define homestead, read the Texas tax code chapter 11.13. It is available online through the State Comptroller office. Just search 2015 Property tax code. The new edition should be released any day now.

Welcome to BP and good luck.

@Richard D.

@Roy Oliphant

Thanks for the info.  So after the redemption period ends, isn't the property owned outright by the tax deed purchaser?  Can I sell the property a month after a 6 month redemption period?

It sounds like the 2 year "right of contestability" means that if you sell a property right after the 6 month redemption period it could be a mess if it means what I think it may.  I searched for more info on tax sale contestability and didn't find much.


@Mark C.

Contestability, just as redemption, does not prevent you from selling but will generally prevent a title policy from being issued.  We have seen lots of claims from folks who say this or that title insurance company will write a title policy but with over 100 properties, we have yet to find one that actually got written.  Once the contestability period is over, we have yet to have one that we couldn't get a policy on.

We do keep looking and are certainly interested in finding a company that will.

@Roy Oliphant there are cases that what you said about homestead to be true. However in each case it fell upon the claimants to prove eligibility at the time of the filing and they must have made an attempt of actually applying before the judgement was rendered. 

I have seen cases where the tax sale was voided in Federal Bankruptcy court after the property was already sold, months before the filing of the bankruptcy. Like I have said in some of my blog posts about this topic, Judges tend to side with the residents of the property. 

City liens are usually extinguished since they are lower on the hierarchy of liens than county tax liens. Most cities release them, just to get the property back on the tax roll.

@Richard D.

If the occupants are leasing the home and aren't the owners, does this change the game?  Also, if the owners have never resided at the property and never filed for homestead, would this fall under a 6 month redemption?  It sounds like this doesn't matter anyway if you can't get a title policy for 2 years.

@Richard D.

I agree, judges do tend to side with the tax suit defendant/owner in these cases and Bankruptcy courts are there to protect creditors and losing a major asset over a few thousand dollars in a property tax suit doesn't fit their charge. 

The reason I mentioned the homestead case law was to highlight how difficult it is to determine whether a house will fall under the 180 day or 2 year redemption period.  Your very valid point regarding the difficulties in filing those cases does not negate the impact of them having been decided in the owners favor.

I also failed to mentioned how difficult it is to file and win a claim of an invalid sale. For example, the owner must put up a deposit equal to the taxes and penalties owed before the suit can be filed.  Since they couldn't (at least didn't) pay the taxes, it is not likely they will be able to make the deposit to file the contest suit.  But it is still a possibility and the title companies are reluctant to issue policies until that possibility has generally expired.

@Mark C.

If the occupant is not the owner, then the home SHOULD not be considered a homestead and thus the 180 day redemption period applies, unless the house is on a property that has an ag exemption.  Ag exempt properties are also covered by the 2 year redemption period.

We teach our students and investors that the real concern for title insurance is the contestability period and they should expect a two year period on all properties before being able to obtain a title policy.  That's why we focus on properties that can cash flow immediately.  Tax sales properties are not for immediate flipping but can still generate great returns.

@Mark C. mentioned immediate cash flow, which you may loose also. That is why it is very important to maintain your contact information with the tax assessors office. 

I'm not sure if every collection attorney is as well organized as Linebarger law firm when it comes to maintaining those records. Besides, it is ultimately your responsibility as the property owner to ensure that your contact information is always current with the tax assessors office. Even if you don't invest in tax sales tax code 31.01(g) leaves no room for excuses.

@Roy Oliphant

@Richard D.

Excellent information! I have yet to purchase a property at tax sale but I'm researching several properties in West Texas. The research of some of these properties is interesting. One that I'm interested in is owned by an LLC and the LLC members have their primary residence elsewhere. I did some research on the LLC and found litigation at the LLC's address on file with the county. In addition, two of the occupants had felony charges against them. It appears there may have been a "falling out" and the property at the LLC's address changed hands. I think that the member or members in the LLC did not update the LLC address and any notifications to the LLC are probably not reaching the correct parties.

I'd like to understand what I'm dealing with prior to bidding on a property, and it appears one of the members of the LLC owns another business that has been around for years and is still operating. This gives me the impression that if I were to win this property it would have a high probability of ending up contested. It definitely has value above and beyond the tax bill, and I had a friend in that area drive by and verify the condition of the property and that it's occupied. The property has no liens against it and the current deed is a quit claim deed.

Am I using the right line of thinking when evaluating properties?  I really don't want a hornets' nest on my first property.  I may pass on this one.

@Richard D.

This sounds like a case prime for the Contestability issue, especially if there is substantial value in the property.  I doubt it would be winnable as the owner has the responsibility of maintaining their correct address with the CAD and so long as the CAD can show they sent notice to the address as maintained they have done what is required. 

The tax sale process is great for this scenario as a property held by an LLC can only be sold by that LLC. The address for the LLC members is not relevant but have you checked to see if the LLC is still maintained with the state? Often these situations see an abandoned LLC which means a very cloudy ownership situation and almost no way to sell the property without the Sheriff's deed.

What types of property are you interested in?