Found a seller who's property is set for auction...

Found a seller who's property is set for auction...

Richmond, VA · Member since 2018 · 47 posts · 20 votes

From my last direct mail campaign I received a signed purchase contract for a piece of vacant land in VA. After a little digging I found out that the property was recently handed over to a law firm for collection efforts and eventual auction due to delinquent taxes. I called the law firm to get more details, but they wouldn't tell me how much is owed on the property. They will only give that information to the property owner. I didn't ask but I'm thinking that they will only accept payment from the owner as well. I recall that being the case from a similar previous experience. They did tell me that the auction won't be for at least 6 months and the property can be reclaimed up until the date of the auction if the back taxes are paid off.

I've already tasked the owner with contacting the law firm and sending me an email with a breakdown of what's owed (I assume along with taxes owed, there are also some fees from the law firm, just not how much to expect)  After I get this, I'll be able to decide if it's gonna be a worthwhile investment.

Assuming I decide to pursue the deal, how should I execute it so that I can finance the owner to pay off their debt without the risk of them taking my money, reclaiming the property, and then deciding not to sell it to me.  Would it be possible to get a signed purchase contract from the seller before paying off the debt via a cashier's check or other form of payment, then moving forward with closing after the property is released?  If anyone has dealt with a similar situation, your input is greatly appreciated.  Thanks!

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

You don’t pay the taxes before you buy it.....they get paid off from the proceeds of the closing OR you could buy, then pay them later but no good reason to do that unless you were s day or two away from the suction. 

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  • Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Teren Cooley get a signed purchase agreement take it to a title company. Then have them run a preliminary title report. It will show all the liens on the property, It may have other liens you don't know about. Good luck

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

    You don’t pay the taxes before you buy it.....they get paid off from the proceeds of the closing OR you could buy, then pay them later but no good reason to do that unless you were s day or two away from the suction. 

  • Richmond, VA · Member since 2018 · 47 posts · 20 votes
    7y

    Thanks for the advice guys.  So generally speaking, liens don't need to be paid off in order to buy a property?  I assume that in this case, where the county has passed the collection case on to a private attorney, that the lien would've been placed by the county?  Or would it be the attorney?  Also, I'm fine with purchasing the property with the lien and owed back taxes then figuring it out with the end buyer if that's possible.  Is there anything that would prevent me from being able to do that other than chain of title issues?  Thanks again!

  • Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Teren Cooley Has a date been set for the tax auction? I don't know VA law. In ND if it goes to auction and no one bids it ends up with the county as the owner. Tax liens have to be cleared before ownership transfers. Without a title search you don't know what else might encumber the property. You can assume some mortgages which are liens.

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

    It’s a Normal Sale as mentioned....sign a contract, get a title search and title insurance, go to closing, the taxes get paid out of the seller’s proceeds....assuming the purchase price covers all the outstanding liens. 

    You’re making this harder than it is. 

    The county/city tax records show how much the actual past due taxes are. 

  • Richmond, VA · Member since 2018 · 47 posts · 20 votes
    7y

    @Tim Herman No date has been set for the auction yet.  This particular county just had an auction a couple weeks ago and they only do 2 per year, so they've told me it won't be until the fall at least, but they don't announce the date until about a month before.  The amount of back taxes owed is so high that the current owner has no plans to pay them off before the auction.  Because of this, I've negotiated a very low price relative to the value of the land.  My plan is to close on the property soon, leave the tax debt as is, and try to market and sell it before the auction takes place.  Right now, my margin is large enough that I estimate being able to price it to sell in a short period of time.  Even if I'm wrong about that, in Virginia, you are able to collect tax sale overages, meaning that if the property is auctioned off for more than what is owed in taxes, fees, etc., the owner is entitled to the surplus after the auction.  So if that's the worst case scenario, I'm gonna go ahead and move forward with the deal.  

    What I'm really trying to figure out is whether I'll be able to buy this property after it's entered into the collection/auction process with this third party lawyer.  If I'm gonna hit a roadblock there, then a title search/insurance policy would just be a waste of money.  From what I've researched so far I don't think it's gonna be an issue, and I'm in the process of getting as many opinions as possible, but I'd like to be more certain before I move any further.

  • Richmond, VA · Member since 2018 · 47 posts · 20 votes
    7y

    @Wayne Brooks I am intentionally overthinking this.  I'm a new investor and am trying to avoid wasting any of my capital on title services until I'm sure about the deal. And because of the small purchase price relative to the cost of closing services in the area, I'll most likely do the title search and close the deal myself, probably without an insurance policy.  

    Also in this case, the county records weren't accurate since it had been referred to a third party lawyer for collections, so I had to have the owner contact the lawyer to get the actual total due.  Just trying to be cautious in the early stages, thanks for the input.

  • Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    7y

    @Teren Cooley Its vacant land , it may not even be worth the tax lien amount . Thats probably why the seller signed a contract . 

  • Richmond, VA · Member since 2018 · 47 posts · 20 votes
    7y

    @Matthew Paul yes it is vacant land and from already having worked in the area I’m pretty certain that the market value is well more than what is owed in taxes. And since I’ll be buying it for a small fraction of what’s owed, I should be getting a lot of equity if I am able to execute the purchase.

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