So the other day I was driving around while my son was napping, and happened on a really jacked up vacant property, all boarded up and overgrown, in a fairly nice neighborhood in Collin County Texas. Lot is fantastic, gorgeous trees, a lot of potential.
Looked into county records and theres about 23 grand in back taxes on it, about 8 years delinquent. Thinking about going to the county and seeing about purchasing it. Could sell the lot to a couple Chip n Joanna's for like 60 to 70 (this area is crawling with flippers). If I rip the boards off and it's in better shape than expected, I could fix it up and rent it for 1450 or so in that area.
Never done this before. I Googled the basics about maybe it's on an auction list and you buy the lein and evict and all that.
If the property is vacant, what legal sort of loopholes do you have to go through to technically evict someone? What are some of the possible out of left field costs that might pop up that I should keep in mind?
I have a vague understanding of the basics and that's about it. I need like, a solid breakdown
Texas Tax Deed: Taxing authorities (county, school, mud/pud, etc.) file suit against owner and property for unpaid taxes. Judge signs order to sell. Sheriff executes sale at foreclosure auction. Taxing units paid from proceeds of sale. Buyer gets a Sheriff's deed (title) to the property.
Tax Liens: Taxing authorities sell their lien for unpaid taxes at auction and get paid from selling the LIEN. Buyer gets a lien against the house and may or may not be able to go through a judicial foreclosure to get paid after a number of years.
There are a number of ways to get title slowly. Adverse possession by paying back taxes, filling affidavit, waiting the requisite number of years (paying the taxes those years too), then filing a suit against the unknown heirs.
Spend the time/money to track down ANY heir, get contract to buy, open probate, get determination of heirship order, close normally (paying taxes out of purchase price).
Keep in mind, that to get an eviction against a tenant, one of the criteria you have to prove up is superior title to the property. If you are a stranger to the transaction, you have no greater claim to possession than the tenants, and they can say you have no claim to charge rent. To get insurance, you have to have an insurable interest. Paying taxes gets you there, but squatting doesn't. Improvements might, but shaky.
Interesting they have let it go so long. So Texas is a tax deed state vs a tax lien state. Sometimes there are reasons they let them go this long....sometimes they probably just slip by. Check with the county tax assessor or their tax collections attorney to see why they have not foreclosed on it yet.
I'd say most of the time it is not worth the trouble of doing this....they go to sale when they go to sale....but in this case and in Collin, might be worth seeing if some kind of action is in progress.
What is the difference between a tax deed state and a tax lien state? Like I said, new territory for me! And I would like to sound like I know what I'm talking about when I call.
Interesting they have let it go so long. So Texas is a tax deed state vs a tax lien state. Sometimes there are reasons they let them go this long....sometimes they probably just slip by. Check with the county tax assessor or their tax collections attorney to see why they have not foreclosed on it yet.
I'd say most of the time it is not worth the trouble of doing this....they go to sale when they go to sale....but in this case and in Collin, might be worth seeing if some kind of action is in progress.
I agree it is unusual because they would have plenty of interested buyers. There may be other litigation pending or IRS issues that preclude auction at this time. Owner is likely in contact with them if its going on for 8 years...
Texas Tax Deed: Taxing authorities (county, school, mud/pud, etc.) file suit against owner and property for unpaid taxes. Judge signs order to sell. Sheriff executes sale at foreclosure auction. Taxing units paid from proceeds of sale. Buyer gets a Sheriff's deed (title) to the property.
Tax Liens: Taxing authorities sell their lien for unpaid taxes at auction and get paid from selling the LIEN. Buyer gets a lien against the house and may or may not be able to go through a judicial foreclosure to get paid after a number of years.
There are a number of ways to get title slowly. Adverse possession by paying back taxes, filling affidavit, waiting the requisite number of years (paying the taxes those years too), then filing a suit against the unknown heirs.
Spend the time/money to track down ANY heir, get contract to buy, open probate, get determination of heirship order, close normally (paying taxes out of purchase price).
Keep in mind, that to get an eviction against a tenant, one of the criteria you have to prove up is superior title to the property. If you are a stranger to the transaction, you have no greater claim to possession than the tenants, and they can say you have no claim to charge rent. To get insurance, you have to have an insurable interest. Paying taxes gets you there, but squatting doesn't. Improvements might, but shaky.
Texas Tax Deed: Taxing authorities (county, school, mud/pud, etc.) file suit against owner and property for unpaid taxes. Judge signs order to sell. Sheriff executes sale at foreclosure auction. Taxing units paid from proceeds of sale. Buyer gets a Sheriff's deed (title) to the property.
Tax Liens: Taxing authorities sell their lien for unpaid taxes at auction and get paid from selling the LIEN. Buyer gets a lien against the house and may or may not be able to go through a judicial foreclosure to get paid after a number of years.
There are a number of ways to get title slowly. Adverse possession by paying back taxes, filling affidavit, waiting the requisite number of years (paying the taxes those years too), then filing a suit against the unknown heirs.
Spend the time/money to track down ANY heir, get contract to buy, open probate, get determination of heirship order, close normally (paying taxes out of purchase price).
Okay, so let me make sure I'm not confused. Say I call, and because I am a super lucky person, I find out that this property will soon be at auction. I get a sherriff's deed. I am free and clear and can sell or improve the property as I please?
Or scenario 2. I call and find out that the county is still in contact with the owners and there is some kind of litigation they are involved in. I would then file an affidavit, pay the taxes, still have to wait a few years and hope nobody comes out of the woodwork claiming ownership?
Or scenario 3, I manage to track down an heir and offer them a little extra cash on top of the back taxes and they're stoked to unload it because they don't know what to do with it and they're happy with an extra 10 grand or whatever?
1. Yes, but you have to win the auction. If it is a great piece of property there will probably be several bidders there. Also, you have to have a cashiers check for the full amount at the sale or within a few hours. You will not be able to sell for at least 6 months. Even then you might not be able to get a title policy.
2. Dont know enough about that. It sounds horribly risky that someone would claim ownership and all the money you spent goes out the window.
3. Yes, but you have to purchase from ALL the heirs. Several may decide that you are not giving them enough money and hold out for more. I would not want to purchase 1/4 of a house or even 45/50ths of a house. There may be one or two heirs or there may be 50. Lots of research you need to do.
I have dealt with a number of these types of properties. Many times when someone knows they are getting some money, they all of a sudden start to get greedy. They think that they deserve MORE even though they have not done anything in the past 5 or 10 years to help with the property.
But I must say that these situations have been some of the most profitable.
2. Horribly, no. If the owners are on the scene, you have to deal with them. Adverse Possession is only to take property from someone who isn't around by making use of it. In Texas, this is HIGHLY disfavored. Yes, the risk is huge, you have to understand what's going on, and be able to defend your position. Not a beginner move.
3. Yes, but... You will have to take them through probate to get title in their name. And they may be only a partial owner, in which case you will need to take them through a partition and sale suit in the same probate case. The court holds onto the money belonging to the other unknown heirs.
#1....Probably not. When you win the tax sale, while you typically get a deed in 2weeks to 2 months, typically you can't sell the property for 2-4 years, because the previous owner has the right to redeem from your or any other owner anywhere from 6months-2years depending on various factors, but in reality it is tough to get title insurance before two years and sometimes 4. So you could sell it for cash to someone who does not care about title insurance, but I would think that is rare. If it is a property that will likely be financed you'll probably have to wait at least 2 years. Also we advise you don't improved the property beyond basic safety and security measures because it is possible the previous owner or their heirs can redeem and not have to reimburse you for it.
#2 I don't know if that works or not. I would not think so and you could loose your entire investment. Just paying taxes does not give you ownership.
#3...that's possible and probably a fair number of people work this angle in Texas and other places too. That's probably the safest and fastest bet.
@Jessica Hughes, in scenario 1 you buy at the county's Property Tax Foreclosure auction and get a clear deed to the property (exceptions are a few liens like Federal Tax Liens and some municipal liens). Also properties bought from tax foreclosure auctions can be more difficult to get title insurance. As noted by Rick Pozos, you'd need to win at the auction. In my county buyers at the foreclosure auction pay on average 80 to 90% of current fair market value. A few get better prices and a few more overpay at the auction.
Scenario 2 is essentially the Adverse Possession route mentioned by @Jerel Ehlert But as he subsequently noted, Adverse Possession will not work unless the legitimate owner has abandoned his/her/their interest in the property. So, if the owner(s) are indeed in contact with the county then your best course is to purchase their interest as you described in your scenario #3. I like using a quit claim deed when owner's are in foreclosure because Quit Claim deeds are simple and short (1/2 page), and owner's who are in foreclosure are not able to warranty their deed anyway.
If the owner's are not available, then to initiate an Adverse Possession, you should collect facts sufficient to establish that any reasonable person would conclude the legal owner has "implicitly abandoned" the property, at which point there is no trespass if you just walk in and start using it as your own. When an owner either expressly or implicitly abandon's property, it can no longer be stolen from the one who abandoned it, or trespassed upon. If you can establish (to your own mind, to reasonable people, and ultimately to a court) that the property has been abandoned by the owner, then you could take possession of a property you do not own, and would pay the property taxes. You'd be looking at a minimum of 10 years before you could ask the court to give you title.
It is true that the owner or heirs could reclaim the property until you get title, but the taxes you paid on their property can become a lien on the property (retain your receipts). To obtain an enforceable lien, you would need to file a claim, -a law suit against the owner of record, for the taxes you paid and get a judgment. The judgment then collects interest at the statutory rate (12% in WA) and you can foreclose your property tax lien through the normal judicial process -where you file a foreclosure claim, let a judge review it, ensure notice was given and make a ruling. So it is not really money you would loose if a claimant showed up, just your precious time.
Your scenario 3, = "I manage to track down an heir and offer them a little extra cash on top of the back taxes..." is the most practical route. Jerel Ehlert and @Rick Pozos's suggestion that you need to purchase from all the heirs and then take the property through probate would be correct if two things are true; first the owner of record must be dead (that is a fact not currently in evidence), and second the need to track down all potential heirs and probate the property is primarily true if you, or an intended subsequent purchaser requires a warranty deed. Otherwise it is possible to make a valid deal with a partial or primary owner to gain partial interest and possession of the property. Then flip the property via a Real Estate contract, a lease option, ect. Just make it clear when you transfer your interest that you are not warrantying the title
As a practical matter no one is required to have 100% ownership, and with abandoned real estate distant heirs seldom make a claim years after their relative has passed. Partial ownership is a definite risk ("Not a beginner move."), but it doesn't need to kill the deal. Owning the majority (or even the minority) of a property can be sufficient to turn a profit. Ten years after you or your descendants in interest start using the property as your own, the ownership claims of any heirs will typically be lost to a claim of Adverse Possession.
Best Wishes. Please Post if you find a way to use this property.
@Jessica Hughes, and @Bruce Lynn, In regard to redemption rights involved in option 1, (buying a Texas property at the county property tax foreclosure auction) Texas, does give owner's who's property was foreclosed the right to redeem their "homestead" after the sale and buy their home back. In Texas, there is a two-year redemption period for residential homestead properties and agricultural properties. Other types of properties have a 180-day (six-month) redemption period (Tex. Tax Code § 34.21).
Clearly, the need to hold a property for two years before you can get clear title, or even know whether it will be redeemed, can be a significant factor in your strategy. However, the Texas 2 year right of redemption for properties sold in Tax Foreclosure auctions would not apply in this instance. In Texas, and generally in other states, to qualify for a residential homestead right of redemption, the property must be the owner's primary residence. A foreclosed owner is not be entitled to the residential homestead right of redemption if he/she was not living in the "boarded up and overgrown" vacant property Also, only the owner of record can qualify to redeem (not the heirs). There is no two year right of redemption if the owner of record is no longer alive.
In addition, if the owner is alive, it is may be possible to purchase from the previous owner a "Waiver of Right to Reedem" -so that redemption is no longer an issue. (check local statutes and title company requirements).
Correction. In some instances in Texas, and as a matter of right a number of other States (Arizona, Alabama, etc) the heirs of a person with "residential homestead" redemption rights can redeem their predecessor's property if their predecessor met the statutory requirements for establishing a Residential Homestead.
Correction. In some instances in Texas, and as a matter of right a number of other States (Arizona, Alabama, etc) the heirs of a person with "residential homestead" redemption rights can redeem their predecessor's property if their predecessor met the statutory requirements for establishing a Residential Homestead.
But because it is clearly abandoned the 180 day redemption period would apply? And if the owner did show up I could give him some cash to waive his right to redeem?
Once the redemption period is over, does that clear up any title issues that would cause me to have difficulty selling? Or would that be a whole other can of worms?
@Jessica Hughes "because it is clearly abandoned the 180 day redemption period would apply?" Generally Correct. Since, the owner is not living in the property (nor anyone else) the owner should not qualify for the two year "residential homestead" redemption period. However, people come to court everyday and claim things that are not true. If a claim to the two year right of redemption was made after the tax sale, then you would want to be prepared to prove, with photos, and testimony or affidavits (written notarized statements) from neighbors and/or relatives that the home was not being used as a residence for xx months.
"And if the owner did show up I could give him some cash to waive his right to redeem?" Yes. At least, in my State (WA) and in other States it is legal to purchase either a waiver of redemption rights or an assignment of the right to redeem. However, be aware that the Statutes governing whether redemption rights can be waived or assigned are state specific. Have that question answered by a professional who is knowledgeable about Texas redemption rights law. Note that this area of law requires a specialist. (Lawyer or title expert) https://www.farahlegal.com/real-estate-attorney/property-tax-redemption/ In my experience, general practice laywers are a waste of time in matters outside the scope of their everyday practice.
Bear in mind also that it will be the owner's choice whether or not to waive or sell his right to redeem. Unless, you have a waiver of the owner's redemption rights before the tax sale, it is only your best guess whether he/she would waive their rights for cash after the sale. I do not know how you could count on it.
"Once the redemption period is over, does that clear up any title issues that would cause me to have difficulty selling?" You can always sell your interest in a property without warrantying the title. So you certainly can sell any interest you obtain. However, if your question is about whether you can get the title insurance that is required for most mortgages, then the answer to this question becomes specific to each Title Company. They seem to set their own internal policies. However, they will very likely answer this question for free. In addition, a knowledgeable title company employee may also be willing to email you their preferred form for an owner to Waive and/or to Assign Redemption Rights. I'd call all your local title companies and ask them all questions you posted above.
Remember that documents which transfer interest in Real Estate (deeds, waivers, assignments) should be notarized.
Awesome information! Sounds like I have a few phonecalls and chats with neighbors before I decide what to do, but I really appreciate your detailed responses to all my dumb questions!