Buying property at a tax sale

21 Replies

I'm considering buying a property at a tax sale, county of San Bernardino, CA 

(Southern California).

What should I lookout for? Are there any resources someone can recommend for me to learn from? Would love to connect with someone who is doing this on regular basis, preferably in the same county, or at least in the state (I believe tax sale and redemption laws are the same in the state regardless of the county, am I correct in this assumption?).

Any info you can provide that would be helpful will be appreciated! 

Hi,

From my Opinion, Buying a property at a tax sale is considered risky. In many cases, you can’t examine the property from the inside and have to guess on its interior condition.You can get stuck with a house filled with building violations and environmental hazards. 

You can make a lot or lose a lot. I am not familiar with CA laws. You need to learn how to buy, etc. Different states have different laws. Learn yours and then proceed with caution. Look for other investors that are seasoned in this aspect for help...and ask questions here on BP. Good luck.

Originally posted by @Christy Jon :

From my Opinion, Buying a property at a tax sale is considered risky. In many cases, you can’t examine the property from the inside and have to guess on its interior condition.You can get stuck with a house filled with building violations and environmental hazards. 

Christy, thank you for your comment. I realize that and would make my max bid at significant discount based on the market value of the property to compensate for potential issues like you mentioned. 

Originally posted by @John Thedford :

You can make a lot or lose a lot. I am not familiar with CA laws. You need to learn how to buy, etc. Different states have different laws. Learn yours and then proceed with caution. Look for other investors that are seasoned in this aspect for help...and ask questions here on BP. Good luck.

John, that was the intent of my post - to connect and get feedback from some investors who have experience buying tax deeds at tax sale auctions. 

I have had great success, and great failures on this.  

Some of my successes were on SFR's that were in pretty good shape, but still required a pretty good amount of work. I walked through every one that I bought prior to the auction.

Most of my failures were
1). due to bureaucracy of city government seeing and out of town investor spending a couple hundred K on investment properties. Seems like the day after I closed they sent inspectors to every single one of those properties and gave me a laundry list of building and health code violations that I was 100% personally responsible for regardless of who the LLC was.
2). the cheapest properties were the biggest problems.  I paid $550 for a 3/1 2-story that ended up costing me about 10k to hazmat demo.

try to find somebody local that has done it before and learn what happens after the auction and after you close - and there will for sure be several small nuances that are specific to your specific tax sale - like title insurance, etc... 

Yes, if at all possible, avoid buying from the auction. 

Buying from the owner(s) or their estate gives you much more flexibility in the price and terms without the nasty competitive pressure that occurs with an auction environment. 

Therefore, skip tracing and heir chasing becomes the challenge of the day.

Alternatively, acquiring a secured creditor position also make for interesting and profitable plays, however now you are dealing with applying for surplus funds due creditor from overbids generated.

If you must buy at auction to clean or perfect title, be aware that there are certain super-priority liens that may survive tax sale, including some water (riparian) districts and other agencies exclosusive of the general tax rolls. 

I have a book specific to CA from years back by John Beck (but not the Free and Clear TV crisp once promoted). My friend Dennis Lanni sent me a PDF from CA revenue and taxation agency that details much of this. It's no doubt free if you can find the material online. 

@Rick H.

Thanks for the feedback, we are actually neighbors - I live in Chino Hills.

I'm not afraid of the pressure at the auction, it will be online auction and I will have my max bids set before going in. I have successfully purchased real estate at online auction before but don't have any experience buying at the tax sales.

I am looking at some houses, but my preference will be buying some land. For example, I'm looking at one parcel 14 acres in size that can be subdivided and then those lots can be sold individually. In this case it is very unlikely that there will be some other liens that you mentions such as water districts, etc. 

One question I have - is it possible that there will be mortgage on the property? In CA the homeowner must be delinquent on taxes for 5 years before the property is sold. I can't imagine that the lender would allow that to happen. And if there is mortgage - will it be wiped out at the tax sale? 

Were you at our LAREIA meeting in Arcadia last night where I spoke on probate and missing owner properties? 

Some things to thing about:

Lenders and loan servicers do screw up. It is possible that both the record owner fails to pay taxes and lender drop the ball monitoring the situation. When this happens (rarely but has happened) lender can apply for the surplus and has a superior claim to (former) owner. 

Also, for what it's worth, a secured lender's debt is not "wiped out". It is merely no longer attached to the subject property. The loan, now unsecured, stands alone on its merits for the lender to determine if legal or practical to attemp collection from other assets of the debtor. 

No, I wasn't there last night, but I presented there couple years ago...

So even if there is a lender, the loan is no longer attached to the property and is responsibility of the past owner. There is no risk for me as the new owner?

I looked at the owner history and some of those properties and what I've seen in several cases is the following scenario:

1. John Smith and Mary Smith, husband and wife

2. Mary Smith (probably husband passed away)

3. Smith Family Trust (property was placed in the living trust)

4. Janet Thompson 50% &  Mark Smith 50% (mom died and kids inherited the property from the living trust)

They didn't pay the taxes for 5 years and not it is up for sale.

I don't remember you speaking at the Los Angeles Asian Real Estate investor Association. What topic? Most of the speakers are pretty seasoned, unlike the clubs by LAX.

Niw tgat you've identified the vesting scenarios, are you going to skip trace or invest money as I do in P.I.'s?

Dimitry - something no one else has addressed here is difficulties in CA with obtaining title insurance.  Yes, technically mortgages are wiped out, but there is not title insurer that will give you insurance for at least one year after the sale, at least not one I have found.  They will send you to a re-insurance company, which charges several thousand dollars and declines to issue re-insurance in about 10% of cases.  In these cases, title insurance company won't insure, at least for one year after the sale and sometimes much longer.  Buyer beware.

Rick, my expertise is truly self directd ret. accounts.  Not sure what you mean by P.I.? 

Also, another question, if the property is occupied, do I just evict the occupants? 

@Leonard L. @Dmitriy Fomichenko

 regarding title insurance - I can't speak for California, my experience is in New York and Indiana.  I had to do quiet title actions on every property.

New York i was able to get a normal policy from fidelity (or somebody like that, don't recall exactly who).  Indiana it was definitely through a second-tier insurance co - Leonard probably what you're calling a re-insurance co.   

P.I. Is Private Investigator. 

Once you have a recirded deed, you own it. It's yours to do as you wish, including restore possession by eviction of former owners, heirs, tenants and/or squatters.

Title insurance is another matter. Title insurers are free to offer or withhold owners and lenders policies as market and competitive pressure dictate. Most do not offer such a policy. Once company does and they insure a certain amount if risk and underwrite through another insurer, perhaps Stewart or FirstAm. 

I still wish to encourage you to find the parties with interests and buy from them. Title insurance is another benefit.

Originally posted by @Leonard L. :

Dimitry - something no one else has addressed here is difficulties in CA with obtaining title insurance.  Yes, technically mortgages are wiped out, but there is not title insurer that will give you insurance for at least one year after the sale, at least not one I have found.  They will send you to a re-insurance company, which charges several thousand dollars and declines to issue re-insurance in about 10% of cases.  In these cases, title insurance company won't insure, at least for one year after the sale and sometimes much longer.  Buyer beware.

Leonard, my intention is not to flip, but to hold (at least for a year or longer). What would be the risk to me in this case? 

If you go back and read my post, I said AT LEAST A YEAR.  So there is no assurance after the year that you can get title insurance.  You may have to bring a quiet title legal action, which is costly and also has an uncertain outcome if the prior owner decides to fight to get his property back.

I would say it's in your best interest to do the quiet title action, if you plan to hold it for any amount of time (however i don't know your strategy, so...)

If you were going to flip it quickly - rather than hold for the year - you probably could sell on a quit claim with the appropriate disclosure and disclaimers.

Just choose your strategy well, sounds like @Rick H. knows that game. If I were in your shoes I would be more than happy to pay for a $400 dinner to pick his brain for a few hours.

I'll spend money tracking down owners and heirs. In other words, I'm not afraid to invest money by paying a private investigator when other investirs are unwilling to do so. I'm prepared to accept the risk that well less than half will turn into deals. 

So @Rick H. what you are saying is that rather than buying at the tax auction, you like to approach owners directly before the sale and offer them a win-win solution? This way you don't have to deal with the auction and get a clear title if they agree to sell.

Makes sense and I would be willing to look into going this route. Do you, or someone you know, offers P.I. services? 

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