What do I need to know before buying a property at a tax auction?

Question

I'm going to my first tax auction in Virginia in about 3 weeks and know nothing about tax sales. What due diligence should I do before I go? If I buy a property what should I expect afterwards? Any information would be greatly appreciated.

Bob Okenwa · Answer

I would suggest you not buy a property since it is apparent you don't really know what you're doing at this time. If you go to this auction, sit back, watch, and learn what everyone else is doing and get a better feel for how everything works. I cannot really comment on how your local tax auction works, but I'd go to local meetups and talk to other investors to see if anyone has experience with this or look online at your tax assessor's website to see if any information is posted about how tax auctions work where you live.

George Nyquist · Answer

The first step is to read every bit of information that the county puts out regarding the sale. Pay careful attention to the registration procedure to make sure that you are not disqualified before you even show up. Make sure you bring the proper payment method in the time period noted by the county. Talk to LOCAL agents/investors/property managers who may have done these deals before. They can let you know what to watch out for that is specific to your area of interest.

There is no such thing as doing too much due diligence in tax deeds.

The non-governmental and non-HOA liens will be wiped out (HOA May get wiped in VA, I haven’t looked into that state). Add up the remaining liens that may be on the title from the utilities, state taxes etc. and subtract that from your final bid. Don’t worry about the IRS liens. 99% of the time they will sunset as Jay mentioned.

I like to check if there are outstanding code violations. I also physically go to every property I might be interested in to gauge possible repair costs.

If you win and want to sell with marketable title, you will need an attorney to do a quiet title action as you will receive a limited warranty deed, not a warranty deed. If you want to keep it as a rental you don’t HAVE TO do it, but I still would.

Bonus tip: Sign up with PACER to check if the homeowner is in bankruptcy. If so I would drop that property from my bid list. Getting tied up in court is no fun.

After that it’s back to the basics of running your business how you see fit.

Best of luck and let me know how it goes!

Wayne Brooks · Answer

Spend a few hundred bucks and sit down with a real estate astorney who deals with tax sales.

It will be the best money you ever spent. Ask around, maybe title co.s if you use them there.

Grant Carrington · Answer

I suggest calling any telephone numbers associated with the auction and asking all the questions you would ask an experienced tax auctioneer until they can refer you to someone who can actually help you.  So you're probably only looking at around 30 phone calls and messages spread out over 10 hours when dealing with the government :).  Small potatoes to get the 10k plus in instant equity.

Bob Okenwa · Answer

@Alphonso Clark

As the saying goes, fools rush in and haste makes waste. Diving headfirst into something with you are unfamiliar with can be treacherous. Make sure you know your local laws and do as much due diligence as you can beforehand. Good luck.

Jay Hinrichs · Answer

out our way IRS sunsets after 120 or 140 days something like that.. I love those deals.. 95% of investors wont bid on them because its scares them.. the other 4% don't know they are there then there is me the 1% who loves that situation LOL

but yes laws are quite different nationwide.. to VASTLY different

Ned Carey · Answer

@Alphonso Clark The most important due diligence is to learn the laws in your state. Tax sale laws vary significantly by state.

You may be able to look up  state laws online. You shouldn't bid unless you  know how the law will affect your investment.  My guess is that the tax sale will wipe out any other liens against the property other than IRS liens. However to get insurable title you will have to do a "Quiet Title" action.

Alphonso Clark · Answer

@Bruce Lynn the auction went pretty well I did some networking and meet some really helpful investors. I didn't buy anything but I should've because the properties I had my eyes on those investors bought. The prices for a couple abandoned places went for around $3,400-$3,800 there was about 5 of those.  One place went for $36,000 that was in a $100,000 neighborhood and nothing sold for more than that. 44 acres of land went for $25,000 and 1 acre went for $500. I'll be going to another auction Thursday but its in another county and I have my eye on 3 potential places there that I may buy if the price is right.

Bruce Lynn · Answer

@Alphonso Clark    How did the auction go?   Buy anything?   What were the prices like?

Alphonso Clark · Answer

@George Nyquist Thanks again

What do I need to know before buying a property at a tax auction?

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