Purchasing Vacant Lot (Owner Owes Back Taxes = Property Value)

Buying & Selling Real Estate
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Purchasing Vacant Lot (Owner Owes Back Taxes = Property Value)

Forest K.
Member since 2021 · 14 posts · 5 votes

There is a vacant lot behind my home and I'd like to own it and I wonder if the BP community has any advice. 

I live in Lexington, KY. The vacant lot is valued at $15K by the city. It has been handed down through a few generations and the current owner stopped paying taxes about 10 years ago. The back taxes owed are > $13.5K. It's worth noting that the lot is small enough (~0.04 acres) that a developer couldn't purchase it and build on it as zoning wouldn't allow.

I've talked to a few of the city offices (County Clerk, County Attorney, and Department of Law). Because the city knows it isn't likely to auction for > $6K (the legal fees that the County Attorney estimates it will cost to claim and auction the property), they don't think it's worth the effort. I assured them we would be happy to pay that amount or more, but because legally the property has to be auctioned, there is no way for us to commit via contract.

I could try to purchase the property from the current owner and pay the back taxes. But, $15K is a lot to pay for such a small lot (nevertheless, we did try to get ahold of them with little luck). So this is a bit of a catch 22.

Here is where I could use some advice. Short of trying to purchase from the owner, the only solution seems to be to encourage the city to put a lean on the property and get it to auction. I received some advice that Code Enforcement is the most likely department to put a lean on the property if they deem it an unreasonable expense to enforce/maintain. Has anyone had any luck with this? I feel like it could take forever to actually get a lean placed and then wait for the city to go through the formalities of giving the owner a chance to pay and then going to auction. I suspect that it would be a minimum of two years if we were lucky.

Any perspective or strategies are welcomed. 
 

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  • Ed Tamayo
    Investor · Sugar Hill, GA · Member since 2014 · 168 posts · 97 votes
    4y

    One think you need to ask the city is what would the opening bid be it they were to put it up for auction. In Georgia, the opening bid is never below the taxes owned plus a few hundred dollars that are added due to the auction itself. (Not thousands like might be the case in Kentucky)  If the opening bid its more that its worth even for you, then the auction wouldn't be a solution. 

    You could get quit claim from the owner and pay him a few hundred bucks for it, and then deal with the back taxes. It looks like the county is Ok with never collecting them so you may never have to pay them.  Although, in my experience, if they think they can make you pay they will try with you.  

    If you can't get a quit claim from the owner, you could take possession of the lot and do an adverse possession claim in 15 years.  You will want to inform yourself very well of this option before proceeding.   Also, for this method to be effective, you have to inform the owner that you are taking possession.   So, there might be a catch 22 there as well. 

    - I am an investment fund manager, not a lawyer :)  

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  • Forest K.
    OP
    Member since 2021 · 14 posts · 5 votes
    4y

    Thanks @Ed Tamayo

    I hadn't heard of a quitclaim deed. If I'm going to try to work with the owner via an attorney, is a quitclaim deed the only deed approach? I did a little searching and it looks like that is a higher-risk option that is often used when there is little risk of a deed issue (such as transferring property between family members). I would assume that if the owner is open to selling, I could simply pay off the taxes (there isn't a lean yet) as a part of the sale and then give the owner some nominal amount of money for selling?

    I did get the sense from the County Attorney that they do sell properties for less than the taxes owed (i.e., whatever the auction price is). But maybe that happens more in cases like these where it's a vacant lot vs a larger property that either has a home or can be easily developed. But I may be mistaken. 

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  • Ed Tamayo
    Investor · Sugar Hill, GA · Member since 2014 · 168 posts · 97 votes
    4y

    The other kind of deed would be a warranty deed  but that would mean that the would require that all taxes and liens be paid before the owner can sign it.

    If you are open to pay the taxes, a Warranty deed would be the way to go.   I mentioned the quit claim in the understanding than 15K in back taxes was too much to pay for the lot and you wouldn't do it. 

    As for this  

    "I could simply pay off the taxes (there isn't a lean yet) as a part of the sale and then give the owner some nominal amount of money for selling?"

    The short answer would be Yes. 

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