Went to my first Tax Auction - Here's what I found out...

13 Replies

Hey Folks!

I went to my first Denton County, TX Sheriff's Sales yesterday and it was an interesting experience. Thankfully my county is not huge so it was not a complete zoo. I am told that the Dallas County Tax Sale is a lot more attended and more cut-throat. There were about 20 people massed by the staircase inside the courthouse building, and it's a mix of race, gender, economic situation, and motivation. I say motivation because I met a very nice gentleman who was there to buy not for himself but for Habitat for Humanity.

What struck me the most was, despite the fair warning from the Sheriff about making sure that you knew what you were getting into before bidding, some people were not well-prepared. Three people started bidding on what could to be a $300k home that was auctioned for an HOA lien. It eventually went for $88k. I was baffled. I am obviously missing something because I thought that they also "inherit" the mortgage lien, which someone thought it to be at $230k. However I sliced and diced it, this would not make a good rental.

Unfortunately, I was not able to talk to the winner as he left right after he won. I did talk to a very nice couple who had been bidding up to the last minute, and asked them what their strategy was. I explained to them that I was new to the real estate investing world and that I would love to buy them a cup of coffee sometime so that I could pick their brains. To my astonishment, they had no idea it was an HOA lien sale and not a tax sale. They did not know the difference it made in their strategy. They thought they were getting a $300k house for cheap. With my freshly acquired knowledge from BP, I explained that there is probably a mortgage on this house built in 2014. I even showed them the BP posts were I got this knowledge. Their attitude was that even if they spent $100k and made a huge mistake, it would be worth it for the learning experience. I'm not that loose with my money. They also told me that they had bid on several houses over the past few months but never won. I couldn't help but feeling that they were just inflating the price for the investors with a plan. I don't want to be that guy.

Folks, the moral of the story is to please do your homework before you get yourselves in trouble. On the bright side, I have introduced them to BiggerPockets and I will also acquaint them with a wholesaler I just met (on BP) and who showed me some fantastic opportunities.

I'd be delighted to hear your thoughts about Sheriff Tax Sales and your horror/success stories. Strategies are even better...

Thanks!

Keep your money moving!

@Marc Tuckey I think that you are correct, but there probably was not a mortgage.  It's very rare as the banks do not want their lien on the property to get second place to a Tax auction, and for this reason usually require taxes to be prepaid in Escrow. So the property would end up in foreclosure before a tax auction as the owner missing payments (therefore missing his prepaid taxes) would alert the Bank and start foreclosure proceedings.    (This is not definitive advice, just what I'm remembering)

good write up as a first hand witness to some wild rides.....all our counties auctions are online , but the unknowns and traps are still there...

tell that couple to reach out to me, and consider to fund my deals, secured, and be the bank....lot less risk....

jax Fl..

@François DesCotes

I have been attending dallas county sheriff sale for a while still consider myself as a beginner...few thoughts wanted to share here.

Most propably the HOA went for sale under constable sale not sheriff...I know its the same auction same place but usually different guy announce it in dallas they start first thing before the start with the ones behind taxes.

Most propably whoever bought the HOA is responsible for the mortgage also...I have read before sometimes the HOA is superior to 1st mortgage but not sure if that applies here in TX.

tax sale is good for rentals in my openion because of the redemption period 6months-2 years...keep in mind even if the redemption right passed most of the title companies wont give full insurance up to 2 years since the date the deed recorded...because it was bought at the auction and they are questioning if somebody decided to fight the sale (all parties were notified, proper notices sent...etc)

Having said that buying/getting the redemption right from the former owners would make you free of all mentioned difficulties and you can sell immediatly no wait! What makes it hard is most of these properties are for many heirs and hard to track/convience all to sign their redemption right (some they even dont know what is the redemption right)

Keep in mind if you got one and decided to rent you need to have the very basic rehab in case someone redeems besides that you need to have it rented on month to month basis for the same reason.

Always check and do your due deligance ahead...not all liens will be wiped out (ex: labor liens), not all years taxes included in what you are buying, be prepared to evict the former owner if you couldnt make cash for keys deal with them...eviction could take short or very long time all depends if appealed and that totally different story!

Hope that helps...Good Luck.

***Not giving any legal advise here always check with an attorney***

Thanks for the feedback @Baraa Yassin ! This was definitely a Sheriff's sale. It was the official dude himself. And the property was listed on the Sheriff's web site. I have heard of the constable sale but those are only posted on a physical piece of paper somewhere.

Yes, that Statutory Right of Redemption can be a killer if you spend too much money on the property. That's an important point, especially if you buy land and want to build on it. I did not know that you could buy the Right of Redemption. I'll have to look that up.

As for other liens, I am still learning how to figure them out. I wish there were a clear place where I could find all of those answers.

Have a great day!

Originally posted by @François DesCotes :

Thanks for the feedback @Baraa Yassin ! This was definitely a Sheriff's sale. It was the official dude himself. And the property was listed on the Sheriff's web site. I have heard of the constable sale but those are only posted on a physical piece of paper somewhere.

Yes, that Statutory Right of Redemption can be a killer if you spend too much money on the property. That's an important point, especially if you buy land and want to build on it. I did not know that you could buy the Right of Redemption. I'll have to look that up.

As for other liens, I am still learning how to figure them out. I wish there were a clear place where I could find all of those answers.

Have a great day!

From what I understand, until the redemption period has elapsed you should only do repairs that would constitute improving or securing the safety and security of the property. Those can be added to the redemption but not cosmetics and I would suspect not a new structure on land. 

@François DesCotes

You can buy the right of redemption by signing the former owner/owners a waiver or the best is to do it through a deed because sometimes there is possibilities to fight the waiver at court or title attorney may not accept it (that's what I was told by my attorney)...still everything has to be notarized and recorded for your protection.

Check these guys don't know why I can't find their 3 online courses but call them and ask its like $60 each course and they are helpful to understand the basics... (4closure dot info) (not making any kind of advertising here and not sure if I should put links here ... if not allowed by BP then I apologize).

@Marc Tuckey

That's correct the very minimum to make it habitable so you can rent it out...in case the redeemer didn't agree with what you paid for the rehab I heard the judge will give you only basic standard $ for what you spent for example you put granite countertops you won't get the $ you spent for that instead you may get what a tile or Formica countertop worth if the old one wasn't salvageable.

having all receipts would always be a good idea.

There are a lot of questions in this post but here goes.  The redemption period is governed by the situation on the property when the judgment was rendered.  If you want to buy the right of redemption you should also buy the right to contest the sale ( 2 years no matter what).  Always listen for the plaintiff at these sales.  If the plaintiff is not one of the taxing entities, it is not a tax foreclosure sale.