Tax Sales / Line of Credit
Hi all, I am trying to understand this process as an investor. If I have a line of credit how can I purchase a tax sale home at the courthouse? I understand you use the LOC as cash but what can I do after that? Say I purchase and fix up the property can I sell it immediately or do I have to wait 2 years for the redemption period? How do investors use their LOC to buy homes at the tax sales and turn around and flip them? I am worried about the 2 year redemption period, or can I just disclose that in the sell of the home? My goal in theory would be to use the LOC to but the tax sale home, fix it up, and then sell it immediately, is that possible?
I've looked into this but haven't done this... I thought even after you purchase the tax sale you still effectively have to foreclose to take Title to the property.... That's where the 2yr redemption comes into play. But, that could be part of the difference of the tax lien and tax deed systems and perhaps state or county specific.
In Texas,
1. There are two different redemption periods. 24 months for primary residence and 6- months for non-primary residence.
2. You can sell the home before the redemption period expires, but you'll have a difficult time getting title insurance.
3. You can purchase the previous owner's redemption rights and effectively eliminate the wait time to sell and the buyer get a title policy.
@Nathan Frost Check out "The 16% Solution". Great break down. Last edition was 2009 so info might be a little dated but it does a great job of outlining the overall structure.
This is my basic understanding for Texas (Please correct me if I am wrong). It is a tax deed state so you are purchasing a redeemable deed. Redemption periods differ. 2 years for primary residential properties. 180 days for anything else. That means that the owner has the redemption period to redeem. As an investor you would get your initial investment back plus a premium of 25% if redeemed in year one and 50% if redeemed in year two. Not a bad return (especially during this market!) The Texas Property code isn't the most fun to read but it is pretty cut and dry (always go to the source document!).
https://statutes.capitol.texas...
So basically you are holding the deed as an investment for the length of the redemption period. If it is not redeemed then the property is your and you are cleared hot to do with it what you wish. It sound like from @Charles Thomas that you can purchase the owner's redemption rights which would negate them potentially redeeming the deed. The Texas Property code expressly forbids this (Section 3, Article XI, Texas Constitution.) and says that any such transfer is void. I'd talk to a real estate attorney.
I think it is a fascinating vehicle and would love to learn more about it. Let me know if you end up following Alice down the rabbit hole as I would love to hear how it goes!
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The same you you buy any property, the property gets deeded to you and you get to do what you want with it.
Quote from @William Knox:
https://statutes.capitol.texas...
So basically you are holding the deed as an investment for the length of the redemption period. If it is not redeemed then the property is your and you are cleared hot to do with it what you wish. It sound like from @Charles Thomas that you can purchase the owner's redemption rights which would negate them potentially redeeming the deed. The Texas Property code expressly forbids this (Section 3, Article XI, Texas Constitution.) and says that any such transfer is void. I'd talk to a real estate attorney.
I think it is a fascinating vehicle and would love to learn more about it. Let me know if you end up following Alice down the rabbit hole as I would love to hear how it goes!
Thanks for this reference. I've successfully executed many of these and thought that I purchased the redemption rights. Each property was bought and sold through a title company; no one brought this to my attention.
The exact quote from the Texas Constitution is below:
XI, Texas Constitution. An owner of real property who is entitled to redeem the property under this section may not transfer the owner's right of redemption to another person. Any instrument purporting to transfer the owner's right of redemption is void.
@Nathan Frost I don't know Texas law, but I do know the regulations in Bradley county TN. (I was looking at a property recently that went through a tax sale, so this is still fresh in my mind.) After the tax sale the redemption period is 30 days to 1 year, depending on the period of delinquency and occupancy.Tenn. Code Ann. § 67-5-2701 (a) (1) (A)
If I were to rehab the property during the redemption period there is no recourse to recover my expenses for the rehab. IE, if I rehab the house during the redemption period, the "Person entitled to redeem" could then redeem the newly rehabbed house and sell it for their gain. The only amount I could recover is whatever it cost to repair any code violations that the county served me on and I subsequently fixed. Tenn. Code Ann. § 67-5-2701 (e) (4)
Again, this is local to me, I don't know Texas law. If I move forward on the property I'm looking at, I will not fix/rehab/remodel anything, unless I am served notice by the county or the redemption period has passed.
Best of luck in your endeavors!
Quote from @Nathan Frost:
Hi all, I am trying to understand this process as an investor. If I have a line of credit how can I purchase a tax sale home at the courthouse? I understand you use the LOC as cash but what can I do after that? Say I purchase and fix up the property can I sell it immediately or do I have to wait 2 years for the redemption period? How do investors use their LOC to buy homes at the tax sales and turn around and flip them? I am worried about the 2 year redemption period, or can I just disclose that in the sell of the home? My goal in theory would be to use the LOC to but the tax sale home, fix it up, and then sell it immediately, is that possible?
Hey Nathan, I don't know if you went through and bought a property at the Tax Sale (as your post was 10 months ago) but this is my experience buying properties at the Texas tax sales:
I never used a LOC to buy, but I imagine that this is like cash in your bank account. It needs to be because once you win the bid at the Courthouse you have between immediately (pay right away) to the end of the day (usually 4 pm) to pay the winning bid (each County has a rule).
About the redemption period, it will be 6 months or 2 years (homestead or agricultural). Most Title Companies will ask you to hold the property for at least 2 years (for their safe, as most of them are not used to working with this type of property).
But you can sell the property before that (but not before the 6 months). I have sold one after 1 year.
As you want to buy and sell as fast as possible, I would look for vacant properties, do the right due diligence (check other liens, owner's situation, etc) and talk to a title company that you may have a relationship with to see if they can help (and if they have worked with this type of property before).
This is just my opinion about it and that's a lot of other information you may seek to decide to move forward buying a property at the tax sale.