Tax deeds
Lithia, FL · Member since 2016 · 90 posts · 4 votes
Hello, I am a new investor starting with tax deeds. I was curious how a property goes from owned by a person, to going up for a lien, to going to a tax deed sale and if i buy at a tax deed sale does the person with the tax lien have first dibs to the property?. I live in florida by the way. Thank you
I do not recommend purchasing a tax deed without knowing what you're doing and performing the appropriate due diligence. Keep in mind that you are often competing against sophisticated parties of all types, even folks managing hedge funds and incorporating tax deeds into their portfolio.
Most counties in Florida have online records where you can, at the very least, do a basic title search. A large portion of my practice is focused on representing tax deed investors, both defense and as plaintiffs. There's no doubt that tax deeds in Florida are attractive to many investors, primarily because a tax deed is generally considered new title and many liens can be wiped out by a tax deed. It's important to understand, however, that some liens may remain, even those that may have a balance higher than the value of the property.
When you acquire property by tax deed, your property is not insurable and you do not have marketable title. Why is this important? If you intend to sell the property after acquisition, the buyer will not be able to obtain conventional financing or many other forms of financing because generally title insurance underwriters will not insure until a four-year statute of limitations has passed or is cut off. Within the four-year statute of limitations, any interested party that was not properly noticed by the county before the tax deed sale can challenge your tax deed.
Generally, investors will proactively hire an attorney to file a quiet title action to quiet title to the property immediately after acquisition. If done properly, once a judgment is obtained the four-year statute of limitations is cut off and you will have marketable and insurable title.
some investors suggest a letter sent in Priorty mail envelope
@Jarred - Yes they do excess proceeds. The property owner has one year to claim them if they are losing their property it's a good thing for the property owner since they are now out.
I assume you mean it's a good thing for the new property owner (deed buyer) if the old owner claims the excess proceeds - since the old owner would then be "out", is that correct?
And, is that correct legally speaking? That is, to claim excess proceeds from the sale, does the owner have to agree with city/county/state to quit all claims? Or could they turn around and use the excess proceeds to hire attorney to challenge sale?
@Jay G. Once a sale or quit claim has taken place and you are the new owner make sure the deed is recorded. If there was an erroneous sale the property owner has some recourse. If not then it is a done deal and the excess proceeds are something the property owner can claim up to one year after the sale. It is a good thing for the previous owner to claim excess proceeds since they are the ones that are out their property, especially if they have equity they are losing. It gives them something to start over with in case to rent a new place or settle some of the unsettled debt accrued ie: possible mortgage, hoa's, etc.. They cannot come back on you and fight the sale unless it was an erroneous sale and should not have been sold.
Some times a property owner will pay their taxes and the sale has already been set. The sale takes place and the payment was not recorded prior but the timeline of the payment was within the rights. There are some states that will allow the owner to come in at the time of sale and pay their property taxes and the sale will not take place on that property. Most of the states will have a time frame where the payment of taxes must take place by that set time. In CA it is approximately 5 days- 2 weeks before the sale which is the last time someone can pay their taxes. The info on the sale will be available at the time of listing and when the property owner gets the chance to make payment.
Still counties take time and things happen which is why CA has a year litigation period for the property owner to contest the sale just in case it was erroneous. The property owner also has one year to claim the excess proceeds providing they were truly late with their tax payments. AR has a two year litigation period which allows the property owner to contest a sale in court if they have grounds to stand on. PA also has a litigation period of 2 years. If you do some research on the property owner most of the time you will find out that he is delinquent on other properties too. It's a good idea not to do rehab on something you are the winning bidder of until the litigation period is over unless you have done enough research to know the property owner is truly at fault. This is only on the states that have a litigation period.
Hey @Josh Carr thanks for taking the time to follow up. I'm in California and have been watching county sales and studying for about 3 years now with regards to these tax deed sales. Planning to get feet this year with 1-3 units. I have read before that as you say, you don't want to do much in terms of improvements for the first year (for CA sales) for the reasons you cite.
FYI, in my area county hangs on to excess proceeds for 4 months and gives you 12 months to claim.
I also noticed while doing DD on upcoming properties that many had owners that passed away a few years before. I guess in CA it's 5 years of unpaid taxes before they can auction? I imagine family members sometimes get in fights over who gets property, who gets to live there, who pays what, etc. and someone doesn't pay the bill until the last minute.
@Jay G.- That is correct for CA it is 5 years delinquency before they go up for sale if they are structured properties. You can get a piece of property, vacant land either residential or forest land or agricultural with up to only 2-3 years of back taxes for the opening bid price. It's always worth looking into as vacant land can be a good revenue maker as well. It seems like any and most land in CA has value.
@Josh Carr As I go through DD I notice many times last recorded action on the property was "Death of Owner" - from several years prior. What's curious about this to me is that in many cases the properties appear lived in - yet, going by the last action, I'd have to wonder who exactly is living there :) If a family member or someone "authorized" to live there, you would think the last record would have been some sort of assignment/reassignment of the deed rather than the death record.
Anyway, in the rare (or not??) situation where a lone person passes away and nobody is left to inherit the property or pay the tax -- what does a 4-5 year abandoned house look like in side? What sort of worst case expenses might be required? If you don't know, ask me in March/April and I'll probably be able to post pics. I'm picturing years of mold growth at worst... that could be bad.
@Jay G. Yes years of mold could be something and also there could be broken windows with elements getting inside. There could be plumbing, wiring, along with appliances missing or even the walls. If it is boarded up then you have at least some protection. You may have to pay for special assessments like water and sewer and weed abatement or code violations as well. Cars left on lots, etc. It could be a good deal of money but after the rehab you put in consider the outcome. Does it outweigh the amount of money put into the rehab? What is the fair market value? What is your price for the property including your rehab and then what is the fair market value after everything is said and done. Will you still gain at least 25-35% profit for your pocket? If that's the case you will then want to consider how much time and effort is put into getting it to that position. Make sure you check for other liens against the property such as IRS or State, County, or City liens as mentioned above. I hope it's not more than 20K for a total rehab. Maybe you'll get lucky and just have to do paint and carpet. I am excited to see the pics when you get the property. Please keep me posted.
Does anyone remember who it was that posted his run down process on how they do their pre-auction due diligence on tax deed offerings? He covered many things and referenced having a team of people to pull all the data together. If I remember correctly, he also had a final step a day or two before the auction to re-verify or physically inspect those few properties that made it through all of the other hurdles - to make sure they were still there, weren't burnt down, or didn't have some other new negative information. It was a great read, but I can't seem to find the post or thread.
I may have posted something like that for our Texas tax deed properties. We provide due dilligence, pictures and lien checks all before the auctions.
Arnie