Title Insurance on tax auction properties? Washington State

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Title Insurance on tax auction properties? Washington State

John Cournoyer
Investor · Lake Stevens, WA · Member since 2016 · 6 posts · 0 votes

Hey Everyone,

I've never posted here but I ran into an interesting scenario I figure someone here has come across in the past. I am primarily a wholesaler in the greater Seattle market and came across a property with a unique situation. The owner of the property purchased the property at a tax foreclosure auction. This is not an IRS foreclosure, but a foreclosure due to state or county property tax delinquency. The owner has the deed to the property but, my title company is telling me they cannot provide title insurance on the property for 3 years due to it being the subject of a tax sale. I guess this has something to do with the redemption period that the former owner or their heirs can object to the sale or contest it somehow. My specific question is about this 3 year period of time. Does everything get magically resolved in 3 years or is there still a clouded title that needs to be resolved?

My title officer is telling me they can insure the title prior to 3 years if it goes through a "quiet title action" which, after talking to a lawyer, sounds like a really cheap and fun thing to do that everyone should try sometime [sarcasm]. 

So that's the setup. To skip to the end, basically I have a partner that I assign things to who is actually comfortable with a lot of risk, and I tied it up so low there's a lot of up-side if I can sort out all the issues with title. My partner is ok with taking title to the property and just keeping it as a rental for 3 years and then trying to sell the property at some point 3 years from now or later. He has cash, so interim financing is not the issue, it's just disposal of the asset is a problem if the title can't be insured. Can anyone explain to me what is materially different about the property 3 years from now?

Second question: There are some judgments on the property. In my experience with trust deed auctions, the judgments always rolled off, but this property is still showing a judgement from the county for code violations. How do I figure out if those are rolled off? I feel like my title officer is not really being that helpful, but i don't really know the right questions to ask since I'm fairly ignorant of the mechanisms of a tax auction. I'm also not the owner of the property so I'm not sure how much anyone will tell me about it if I call. Anybody go through something like this in King County Washington State?

Thanks for any help on this!

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y

Yes, as @Ned Carey said, the three years is likely your state statute time limitation to challenge a tax sale....here it is four years.  The normal suggestion is to go ahedpad and do the QT, here about $1500-$2000, so you know it’s done without having to wait the three years.  Also, I don’t believe the buyer at the tax sale has to be the one to do it, you could buy it then do the QT as the QT is all about notifying anyone with a potential interest and verifying the Process that was done by the tax authority.

Buying now though should be at a discount, considering both the time and costs of the QT and the chance the sale gets reversed.....you can always look at the documentation in the tax authority files to see if you find any glaring omissions.  Here it’s fairly straight forward as state law says the taxing authority only has to send notice to the owner at the last address on file....no need to start tracking down owner’s, heirs, etc.

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  • Account Closed
    Contractor · San Diego, CA · Member since 2018 · 432 posts · 221 votes
    7y
    @John CournoyerHi! That’s typical for tax auctioned properties. I just closed a piece of land with same circumstances in TN. My title company estimated $1500 on a quite title. Once you’ve done that they will insure and you can sell as normal. Concerning code violations, I would think the title co should make those clear to you, and anything else you should be able to get from the county on what those are. Just tread lightly so you don’t cause more code violations to be noticed if you think you have a good deal. Code violations are very common on older homes, as none of them went through code inspections. I’m dealing with a property that has 2 units on it, but the county only allows one per residential lot. They are so old, that they’re grandfathered in, but I don’t want to make a fuss about them with the zoning department because that’s 2 rentals in a buy and hold situation. If I went to the county zoning or building department, maybe they’d say something I don’t like, like tear one down. It’s being sold as one unit and I don’t suppose it could ever be recorded as 2 units since the city doesn’t permit that per residential lot and one is more of a granny flat. So, do your research but if you have specific questions about the property code violations, you might stay anonymous to the code inforcers as you ask the questions. Sometimes they will have a way of getting you to tell them your name and the property and then it just seems like you’ve highlighted your situation to the person who can cost you $ in tear downs etc. it’s probably best to find out the worst about the property without drawing too much attention to code violations as you do. I’m curious to hear what others say, as I am NOT an authority on these things, just flipped a bunch of houses for investors.
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  • Account Closed
    Contractor · San Diego, CA · Member since 2018 · 432 posts · 221 votes
    7y
    @John Cournoyer additionally, code violations will often be additions that aren’t listed on the legal property description. I’ve gotten a bank to lend me on a property that had a small addition code violation. It came up in the report, but after getting signed off on termite report, they funded and I didn’t have to tear out. Obviously, this is something I would want to solve if flipping, but would rather not remove a good addition in a buy and hold situation if I can get it financed. So basically the code violations would be noticed by your lenders inspector and become a problem, but may not be something the city requires you to fix. I would LOVE to hear other people’s experience on this and see how common the city/county actually keeps a record of code violations.
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  • John Cournoyer
    OP
    Investor · Lake Stevens, WA · Member since 2016 · 6 posts · 0 votes
    7y

    Thanks for the reply Jonathan. Yeah I talked to the title company again and they didn't even look into the judgments about the code violations because they were turned off by the situation the house was auctioned under. He said the owner was deceased at the time so that opens up the can of worms of all his potential heirs potentially contesting the sale. They're still willing to insure after a quiet title action but that can take 6 months and mucho $$$$. So yeah the title company should be doing for me but they pretty much looked long enough to say "no" lol. I've really loved my experience with them in every other aspect though so it's tough. I think I'm going to work with the seller in tracking it down from the county's records. 

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  • John Cournoyer
    OP
    Investor · Lake Stevens, WA · Member since 2016 · 6 posts · 0 votes
    7y

    Yeah I get what you're saying on the code violations. In this particular case I'm more concerned about wiping out the $14,000 judgment against the property DUE TO code violations. I realize the code problems are there until we fix them, it's just the big fat judgment I'm trying to wriggle out of, and then work with the county to get the place up to snuff. 

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  • Account Closed
    Contractor · San Diego, CA · Member since 2018 · 432 posts · 221 votes
    7y
    @John Cournoyer Wow, sheesh! I never thought about about mega code violation judgements! Ouch, guess that’s all part of making good deals for yourself. Finding things people won’t touch and fixing them.. You can do it! The guy is dead! Restart, probationary period to fix? Gotta be something.
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  • Tan Su
    Real Estate Broker · Chicago, IL · Member since 2018 · 54 posts · 13 votes
    7y
    You can use Tax Title Sevice or suit to quiet the title but both maybe “ expensive depending on the market value of the property you bought. Or you can just rehab and hold as a rental or cheap sell by Quitclaim deed which is what I am doing.
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  • John Cournoyer
    OP
    Investor · Lake Stevens, WA · Member since 2016 · 6 posts · 0 votes
    7y

    Thanks @tan su Yeah we've considered doing quiet title but it's mainly the time problem. I don't know if the seller is willing to be in contract all that time and the seller would have to be involved since it's not our title yet. I guess you have to post something in the news paper for like 3 months and then get in front of a judge. It's not really our main issue since we are willing to keep it as a rental for 3 years anyway. We can always pursue quiet title once we buy it and we are rehabbing it. 

    I did look into it deeper and I have another title company who is saying they wiped the judgements. I'm supposed to call her later today. That could be good news!

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    7y

    @John Cournoyer

    My guess is the statute of limitations runs out to challenge the tax foreclosure. This may be a state issue or it may be the title insurance companies policy. 

    My guess is the law says the judgement is wiped out. But if the county didn't notify a judgment holder then that's where challenges to the title come in.  The problem with tax deeds is no one know the level of diligence the county used when taking the property. 

    As far as whether a county judgement stays with the property, that is a basic question a title company should know.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    Yes, as @Ned Carey said, the three years is likely your state statute time limitation to challenge a tax sale....here it is four years.  The normal suggestion is to go ahedpad and do the QT, here about $1500-$2000, so you know it’s done without having to wait the three years.  Also, I don’t believe the buyer at the tax sale has to be the one to do it, you could buy it then do the QT as the QT is all about notifying anyone with a potential interest and verifying the Process that was done by the tax authority.

    Buying now though should be at a discount, considering both the time and costs of the QT and the chance the sale gets reversed.....you can always look at the documentation in the tax authority files to see if you find any glaring omissions.  Here it’s fairly straight forward as state law says the taxing authority only has to send notice to the owner at the last address on file....no need to start tracking down owner’s, heirs, etc.

    1Reply
  • John Cournoyer
    OP
    Investor · Lake Stevens, WA · Member since 2016 · 6 posts · 0 votes
    7y

    Thanks for the help guys. I looked into it further and the judgement is indeed wiped out. They were properly notified. The code department could just slap it back on there but I'm trying to figure out if they will play ball with me. 

    I also cornered my title guy and got it figured out that 3 years is the limitation on contesting the sale in WA. The quiet title action seems more expensive in this state though. I only called one lawyer who was recommended to me by another investor, but he said 5-10k and 3 to 6 months to get it done. My investor partner is ok with keeping it as a rental for 3 years either way, so I'm not as worried about that. It sounds like it's not cheap in my area though. Seems like we can do the deal if the house can be brought to code. It's just a matter of getting a straight answer on that from a seemingly limitless number of different government agencies. Wish me luck!

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