Are Tax Deed Sales Lucrative?
Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes
Hello all,
Recently I have been looking into tax deed sales, and a friend of mine told me if you win a tax deed auction, you get the title free and clear. Is this true? What is the process of doing so?
They hold an auction every Thursday in my area, was planning on going this week and checking it out.
From my understanding if you win a tax deed auction, there is a waiting period for other lien holders to claim that their lien is more substantial to yours.
Would I need to get a Real estate attorney involved? How much does this all usually cost?
Thanks in advance for your help!
As others have said it can/will be state specific. I invest in FL (Orange, Seminole and Volusia) and this is based on those areas.
First you somewhat need to understand the tax lien foreclosure process. A lien holder purchases the certificate at sale, if the property owner doesn't pay the back taxes then the certificate holder can proceed to sale. They apply for tax sale and any potential parties must be notified (other lien holders, owners ect). Once that is done the property is auctioned and if it sells "you" become the owner via a tax deed.
First: FL is not a redemption state. Meaning after the sale there is no period of time in which the owner could come back and pay the back money (including any associated costs) and reclaim ownership of the property. This is true in other states, and you need to know how long that is to "plan" your course of action.
Second: You do receive a "free and clear" tax deed...sort of. While other liens are extinguished by the sale, you do not have clear title. There is always a possibility that the notification was not done properly and there is a lien holder who has rights to the property...this places a cloud on title. This is a problem in the fact that any lender will require title insurance in order to fund a loan against the property.
Two ways to clear this up. One you wait 4 years during which time no one will insure title (that I know of). You could sell the property, but anyone buying would need to be a cash buyer, and they would be buying with the same clouded title until the 4 years was up.
Second way is you pursue a "quiet title action". This is basically a legal proceeding to verify that all lien holders/owner's rights were extinguished and the property title is clear. Once that is done you would now have a marketable title again and could sell or refinance using conventional lending. This costs about $3-4000 I believe.
The big thing to understand here is "clear title" and "free and clear" (of liens and encumberances) are two vastly different things. As long as you understand the difference, and budget accordingly then you're on the right track.
1. I have several decades experience dealing with title issues, and worked in an attorney office where real estate was more than 90% of the business.
2. I have contacted Tax Title on several properties and they have refused to issue a certificate or title insurance on the properties presented to them.
3. The costs at Tax Tittle IF they would issue a certificate exceeds a basic uncontested Quiet Title Action.
4. Often times you can't get a Quit Claim Deed from the former owner. Some times they are deceased. some times they don't want to be found for what ever personal reason. Had a case where the owner paid close to $200,000 CASH for the property less 3 years earlier and walked away because he didn't want to give up either his location, address, or phone number.
5. Often times the title problem is an old problem. Had another case where the last deeded owner had died in 1910 with no spouse, no heirs, no children, no will, no probate, no anything. The QTA took over a year and there were over 20 people named in the suit, as having possible interest in the property.
6. One time had a case where there were SIX unrecorded deeds in a row in the chain of title. It was a super mess to clean that title and took several years.
7. One time had a deed that was recorded in the wrong county; difficult to search that title.
8. Misspelled names and mis-indexing are another common problem. some times in recitals the adjoiners names are phonetically stated though misspelled.
9. Without clear title no bank or institution will finance the property.
10 without clear title most people won't buy they property because they can't refinance and have difficulty selling.
Thank you for your input David, I too have several decades in title, at least a few. Perhaps you're a bit more 'seasoned' than I. I've been investing since 1997, I worked in title a decade before I opened my own title insurance and escrow company, I personally trained my staff including examiners, developed continuing education courses for real estate agents blah blah blah, Let's say I could toot my own horn.
I've had previous occupants rip the irrigation system out of the back yard leaving trenches. I've had tenants steal ALL the copper plumbing - through the walls. I've cleaned up after the hoarders. I've been greeted at the door of a new Tax Deed purchase by a highly irritated gentleman carrying a shotgun.
My point is, there are awesome, entertaining and painful horror stories out there on all ends of the investor spectrum. Yours with six unrecorded deeds sounds like a good one! With this type of investing there will always be the the potential for unseen issues to pop up like the deed recorded in the wrong county. How could the investor have done anything differently prior to the auction to have avoided that situation? He couldn't.
There are also great success stories and creative considerations for many situations. In California, barring any unforseen chain of title issues, Tax Deeds are fully insurable after the one year statute of limitations for the sale to be overturned is expired.
Bottom line - I think it's possible that you and I absolutely agree on one very important point. Know your product, allow for surprises and due diligence is imperative.
Cheers to you. It's great to have veteran title experts in BP.
@Brandy Orner Sounds like a nice C.V.
I think Dave-O is accustomed to wannabe players and few seasoned pros.
If you are in San Diego, you must meet my friends Ward Hanigan and Bill Tan. Ward especially enjoys solving title puzzles for fun and profit.
You ever work AP properties then Quiet Title?
Thank you kind sir.
No AP deals as an investor, not that I'm opposed.
I travel so much between time with students, research time and travelling between auctions I'm only in San Diego a few weeks a year. Probably not back there til mid spring unless duty calls me back earlier. At this point in my journey, living out of suit cases is awesome!
However, I'd love an introduction to Ward and Bil.
In in PA the AP is 21 years which adds to the difficulty in doing one. One investor I know bought some property with title issues for cash, then rented them out for 21 years, then sold and the new buyer was able to get title insurance based on implied AP. During the 21 year wait period the investor collected rent, no problem but was never able to re-fi.
Louisiana is different. I talked to several attorneys in town and they won't insure title on a tax deed sale. I'm sure if I made enough calls I could find someone but will a bank finance in that scenario? I don't think so
Here in PA it is the same; but if I remember correctly AP is even more severe in LA at 30 years. that's an awful long time to wait in one's real estate investing career to get clear title!
Haha I agree
Wow this is a really interesting topic. Thanks to all who took the time to contribute, super informative!
So @Brandy Orner, at the expense of showing how "green" I am to REI, when your talking about AP what exactly does that mean?
Also, in your expert opinion would you recommend tax deed sales for new investors in CA, specifically the San Diego area?
-Alex N.
AP is Adverse Possession. It is a method to acquire ownership of a property following very specific rules. The time frame varies in the states, CA is 5 years, PA is 21 years, TX is 25 years, and LA is 30 years, for example. In Costa Rica it is 6 MONTHS. Some people refer to AP as squatters rights, but its more detailed than that.
After you meet the state requirements, you can petition the court to affirm your ownership of the property.
Requirements include:
1. actual possession leaving no doubt that YOU are in possession of the property.
2. constructive possession, having some "color of title" meaning that you have some paper however imperfect showing some interest in the property.
3. continuous possession, your AP has to be un-interrupted. Break the chain and you have to start all over again.
4. hostile or notorious possession, you have to possess the property against the wishes of the owner, the owner has to know you are possessing the property and the owner can't give you permission as that breask the AP.
5. open and visible possession, you can't be stealth about it, it has to be very clear that you are possessing the property.
6. In some states you have to be paying the taxes for the entire AP period.
7. Exclusive possession, you can't be sharing the AP, joint occupancy would not satisfy the AP requirements.
8. You can't AP a "Remainderman" under the termination of the estate, like a life estate. I've bought property that had life estates, that a certain person could live on the property for the remainder of their natural life. In one such case the remainderman had lived there for over 25 years already and continued to live there longer. That life estate person cannot be APed against by law.
9. Railroad right of ways, utility rights of ways and other right of ways cannot be APed.
10. Property previous acquired by "Eminent Domain", a taking by the government for a public use can not be APed.
11. AP is often used in property line, driveway and fence disputes and involving only a small piece of land.
In CA, AP may be completed by either Color of Title (a Deed which, under its face appears to convey legal title) or Claim of Right, which is the brazen occupation of real property better known to squatters.
A word of warning: I've watched many people, most amateurs, attempt to use AP as a way to gain benefits leading to legal title. In almost every case, the AP was deficient and resulted in very nasty lawsuits with expensive damages waged against the squatter. If you are starting real estate, this will end your career in an ugly way.
So, AP is a legal resource for experienced investors but should be a tool of last resort and never an objective to find opportunities to use it.
Couldn't agree more. Here the 21 years is a stiff deterrent, and there is an additional requirement that if you are Aping vacant land or lots that you have to fence it off and excluded EVERYBODY including the owner from the property for 21 years without a break.
When there is s dispute over a fence line, its better to resolve by negotiations rather than waiting 21 years and filing a law suit.
I have seen where title companies and title attorneys have given a flyer of selling a tax sale property for example, if the sale is more than 21 years old without having to file either a Quiet Tittle Action, or an Adverse Possession Suit.
I received a keyword alert on adverse possession. I'm currently in a situation where I'll finally complete my first successful AP deal.
As Mr. Hammond already stated it is a very lengthy and risky process and involves lots of study and homework before even considering taking possession. 90% of it involves detective type work investigating and find out if there are any heirs, beneficiaries, trustees, relatives neighbors or any other parties that may have any sort of equitable interest and said property. This also includes local Municipalities such as the county or city that may also have interest in property as well. Doing a very very thorough research and investigation on all subject matters is extremely important before even considering the AP deal. My first AP deal went south after I found out that the public administrator had their hand on the property, at which point I was already in and started to claim it as my own. The end result was I was served by the sheriff department had to appear in court. Thankfully I just told the judge I was an amateur and did not know what I was doing and I ended up with no charges. So for the original poster, whether it be a tax deed or AP deal the biggest Takeaway is do your homework!
Thank you gentlemen for your explanations and valuable advice, which is sure you did not fall on deaf ears. A lesson I learned after having my first kid and believing I knew EVERYTHING about being a parent was simply this... shut up and truly listen to those people (my parents) who have been there and done that, and then decide how to move forward.
That being said, I think AP is far too risky a proposition for a rookie like myself, but I am glad to at least have an understanding of it now.
Wow this is a really interesting topic. Thanks to all who took the time to contribute, super informative!
So @Brandy Orner, at the expense of showing how "green" I am to REI, when your talking about AP what exactly does that mean?
Also, in your expert opinion would you recommend tax deed sales for new investors in CA, specifically the San Diego area?
-Alex N.
@alex nombrano
It looks like your AP question has been addressed.
The San Diego market is investor saturated! It's quite literally a zoo and most times the few valuable properties that end up remaining on list on auction day are bid up to full retail value or higher. Too many investors and not enough product to be worth the work to go to the auction. Also, there are a LOT of distressed property investors in the area using the tax deed list in San Diego as their working list of homeowners to seek out, all hoping to strike a deal with the homeowner prior to the auction. Further reducing the product available at auction.
If you're interested in Tax Deeds, California is a great market. However, I would recommend you stick to cities that are not featured on a popular television show. (Past or Present)
Good Luck!
@Zamir Kazi that happened to me (property taken off list) for an online auction in FL, Lehigh Acres area. I had researched the area, used propertysnapshots.com to view the property and take updated photos (you can also use a local realtor if you wish). looked at the comps, and had my bid, but it was off the list the next day. From what I know, you are not allowed to inspect the inside property.
hi i just got my first tax deed in orlando florida ,i would love to know how i can get a marketable title ? should i file a quietclaim deed action ? any info will help thank s to you !!!
@Kamal Elfag perhaps you mean a Quiet Title action? A local real estate attorney would be able to do that for you. PM me if you need a few attorney references.
depends on the title company in CA... WE bought literally over 1k parcels at tax sale over the years and got title insurance the minute we got the deed from the tax collector.. there is no right of redemption in CA. The only way a sale can be VOIDABLE is if the person that lost the property can prove that the country messed up on the 21 day publication law.. and or never sent a letter to the last known address of the person or entity losing it.
IRS liens can stay on for 6 months then sunset... everything else is removed from title..
Florida is a Tax cert state and as such much more competitive and complicated than a TAx Deed sale state were the sale is just like an auction you win the bid you own the asset.
What title company have you used for this? We are in CA and are looking at starting investing through this method. Any insight would be appreciated. Thanks!
Once you win at the auction, you can use the services of companies like Tax Title Services or Clear to sell, they will help you with title issues.
Can anyone speak to getting Title insurance for quick flips of Tax deed sales in California. I am trying to find an agency to use. I may have to wait out the year, but I don't want to wait for 5 years?
I have been advised to check with Orange Coast title company, any advice?
Taxtitlesevices.com or Meridian Title can do a tax certification which is faster than a quiet title.