New Orleans Land Auction

43 Replies

For an investor, unless you are planning on building on these lots, I see no reason to buy them. That said, as an out of towner there are a few things you really need to pay close attention to. 

First and foremost, you really need to have legal counsel to make sure you don't get into trouble. Orleans Parish tax sales are extremely tricky. Multitudes of people have bought into our tax sales only to find they can never gain ownership of the property. Granted this adjudication sale is supposed to offer full possession and Title Insurance, but it is questionable as to whether that will actually happen on all of them.

If you think you might consider building here, keep in mind, most of the city is Historical and you will quite possibly have some pretty strict guidelines to adhere to. 

New Orleans has some serious war zones AND you can literally cross one street and be in a whole different kind of neighborhood. Do NOT buy without conferring with someone who knows where to buy and where you just shouldn't. 

Some of these properties still have structures standing on them. It is true that some of them have been sitting for 20 years with tax issues. 20 years and a number of hurricanes makes for some very crappy condition. You will most likely need to call for the bulldozers fairly quickly, before the city does it. Also understand that this is SE Louisiana, be prepared to have the grass cut OFTEN.

Here are a couple of articles that may help. If you have any questions or need some help around here, feel free to hit me up.

http://www.nola.com/politics/index.ssf/2015/03/3000_properties_online_auction.html#incart_riverhttp://www.nola.com/politics/index.ssf/2015/03/new_orleans_property_auction_f.html#incart_related_stories

http://www.nola.com/politics/index.ssf/2015/03/new_orleans_online_property_au.html#incart_related_stories

@Kimberly Jones

Given my limited experience with New Orleans, my initial inclination is to stay hands off. It's a place that has a great deal of nostalgia for many, a notoriously tricky local government, and historically rough weather. 

Interested in the prospect of land investment like this, but it's never easy.

Thanks @Kimberly Jones , you have good experience in the area. So I may reach out to your in the future, should one of my colleagues take more interest. My business partner was born in New Orleans, and I know he wants to get back there, eventually.

Ah Ha! I knew there had to be some reason behind a L.I.C. investor looking way down here in New Orleans. Of course your partner wants to get back. We have a saying around here...You can live in any city in America but New Orleans is the only city that lives inside of you. She is very hard to leave and even harder to stay away from!!

On a serious note, we are in full swing at this point. I read something a few days ago about the fact that "wholesale deals" have gone up in price by almost 50% in the past year. Retail prices are going up just as quickly so there is some pretty fierce competition. Your partner might want to start keeping a close eye on things, maybe pick up at least an investment property or two, before the sticker prices go even higher.

 Feel free to contact me any time. Be glad to help.

@Kimberly Jones Wondering if you could help me with a few questions. A friend and I jumped into this and bought 5 tax certificates (NOT the adjudicated sales deeds), all at 100% ownership interest, 1 vacant lot in Hollygrove that is on a nice block, and 4 houses, all of which from the outside look to be in good condition. They are all worth considerably more than the few hundred we spent on the tax certificates.

So we are assuming that they will all be redeemed and we'll just get the interest as a return. But I guess there's a tiny chance 3 years can pass and then we'd have the opportunity to file an action to get the title (though from reading up on it, that could be a long, difficult process).

1) Civicsource says we don't need to contact the current owners, but should we write them letters anyway?

2) Is there anything else we need to do right now? It seems like 2015 taxes are currently owed on these properties. Do we have to pay that now? It doesn't seem like those were included in the tax sale. If we pay those, then the current owner needs to 'redeem' that amount, as well, correct?

3) The public records were unclear on whether there are mortgages on the properties, but if there are, I have heard that the banks will eventually redeem the property. Is that generally the case?

4) What if the owner sells the property? Couldn't investors just contact the owners and offer to buy the property at a huge discount and then redeem it themselves?

Thanks.

@Adam K. I hate to say this but I was not aware that there is such a thing as a nice block in Hollygrove. I have had the opportunity to take on properties free of charge over there and it isn't worth it to me. Years ago I was called to do field services on a couple of properties in there and the things I saw made me question my sanity for being there. Quite literally a drug boys flea market. Robbings and shootings are extremely common there. I guess you could get lucky and find quieter areas along the fringes....maybe. Are you familiar with the rapper Lil Wayne? That is Hollygrove. Born and bred. 

I do not personally play with tax sales here just because they are way too messy. Beyond the fact that the City has done a seriously crappy job of keeping any records on the sales, the entire process is so complicated that it almost requires a college course to understand. Chalk it up to Napoleonic laws and an archaic system. Personally, I prefer NPN's to tax deals in this City.

 I do know that it isn't necessary to contact the owners but if I were holding the tax note I would most assuredly contact the owner to find out if they would like to sell the property. You might get lucky and pick up a good deal today instead of waiting 3 years to see what happens.

2015 Taxes came due Feb. 1 and I am positive they are not included in the sale you participated in. You should pay them. If you don't pay them you risk someone coming behind you and that only makes an already complicated situation even more so. Any taxes you pay from here on you just add to the bill. If the owner ever comes to redeem, they will have to pay all.

If you ever need feet in the street to check on anything down here just give me a shout. 

I almost forgot your question about the banks. Don't count on lenders redeeming. For starters, some of the properties here are so far gone that the lenders aren't even interested anymore.  Also a large number of lenders will hold out to the bitter end and beyond. I have sold thousands of REOs over the past 6 years and nearly all of them riddled with tax liens.

As I expect you know, if the day comes that you foreclose on the tax note you will have to notify any lenders and they would have to pay you off or be wiped out by the foreclosure.

Ironic that Hollygrove is in the news this morning....http://uptownmessenger.com/2015/03/nine-people-arrested-two-guns-seized-in-probation-sweep-around-hollygrovegert-town/

@Kimberly Jones Thanks for the responses --- I'm actually in NOLA now, I spend a fair amount of time here, and my friend does as well. But I do not know it near as well as I'm sure you do and I'll be sure to contact you with any further questions.

And it's technically Hollygrove I guess, but it's really on the border of mid-city and dixon, right across from the Costco just next to I-10. According to all the crime stats, it's actually quite low in that part of the neighborhood, but it's not really important --- I'm pretty sure all the certificates will be redeemed.

DO NOT PARTICIPATE IN the city of New Orleans Adjudicated Property tax liens sales. The first are July 1 (only a handful). They are past rejects with questionable title searches even though a brand new assigned title company will give alleged title policies. The boiler plate attorney opinions warn that past heirs can come forward anytime in the future. The city of New Orleans knows it has failed to properly notify heirs, continues to sell tax liens over and over on the same property without proper notification of lien owners. Win a judgment against the city and they don't pay them!

I've done the tax title sale (not the current one, the previous version) and let me tell you it was quite a learning experience. I put in about 25k over three years and got out of it one lot and 19k back, with another 8k in losses due to a home being foreclosed on. I wouldn't do it again, and the lot I "have" is really just  a side yard for me. If that guy ever comes back to pay me I've got a long list of yard equipment that he's going to pay me back for. 

@Kimberly I'd say there are some upcoming areas of Hollygrove. Its still rough over there, but I have a few friends in the area who have bough fixer uppers and are working them right now. I'd like to hear more about how you invest in NPN's and the REO's that get offered to you free of charge.

@Adam K. undefined

This post is a few month old, but thought I'd chime in anyway. 

I successfully completed one nola tax sale, and I have to say it was a learning experience as well. Furthermore, if I knew then what I know now, I would NOT do one again.

I am from NO, and know the city well enough. Candace is correct in that there are areas where I would NEVER consider purchasing the tax sale deed, and not only due to the fact that the law on actually taking ownership on these properties is far from clear.

In response to your original post, I would HIGHLY recommend sending a very clear letter to the owners explaining that you have bought the tax deed and what they owe you. (I would be happy to share my template, just PM me.) I say this because, you do NOT want this to go to court. The law is untested and (in my unprofessional opinion) there is not a clear, constitutionally legal (louisiana constitution) mechanism by which you can take ownership of the property. Thus (IMO) your only recourse (or at least, your arguably best recourse) is to attempt to get the property owner to redeem (and pay you back plus interest). I think that sending polite, but firm letters stating the legal facts are the best way to do this.

I do not know the exact location of your tax sale properties, but "hollygrove" is definitly a red flag, and in neighborhoods like that, there is, sadly, a reasonable chance that the property will not be redeemed. True, the property owner legally owes you the taxes and penalty that you paid, but if they have no assets, and the property is worthless, then there is nothing to pay you with. Furthermore, knowing new orleans, there is a good chance the property has never gone through probate, and the legal owner is not clear or defined.

I dont mean to scare you, but that is how I understand the current tax sale situation in new orleans (note that this does not address the new adjucation sale process, which is a totally different animal, and as I understand it was designed to address some of these issues I am discussing).

Like I said, I am no expert on these tax sales, but I did do one successfully, and I am not very interested in doing another any time soon, until the law is clarified and tested.

I would strongly suggest that you send those letters, consult a local real estate attorney (I can suggest a couple), and look into your properties a bit more.

One additional thought: It is an option to not pay any additional taxes on the properties you bought the tax deeds on. If you dont pay taxes, the properties will go back to tax sale, and a 2nd investor can come forth and buy the tax deed. You will still be in line to recieve the penalty and interest you are owed, but it reduces your subsequent investment risk. I have listened to much more savy investors than myself explain this strategy in detail. It may be a strategy you wish to explore if you later decide you dont want to invest any more into these properties. 

Thanks Adam, this was incredibly helpful. Being an investor in New Orleans I looked at these and just didn't see the appeal, mainly because of the neighborhoods.  Thanks for sharing your insight and experience.  That said, do you happen to know any good local lawyers who specialize in real estate? I'm in the process of rebuilding my team and would love to know if you have anyone you would recommend.

Thanks!

Mark

@Mark Hamdan  I recommend you contact attorney David Birdsong 504-780-9202. He is an attorney who is also an investor.  If I'm not mistaken, I believe he is the former president of NOREIA.  If I were closer to NOLA, I would hire him, but I'm just a little out of range here in Lafayette.  I met him when he came to speak at the Baton Rouge Real Estate investors meeting last year and he was very impressive.

@Account Closed

I have used two RE attorneys in new orleans, both just for short consultations, so I can't really speak about either attorney in depth. However, both came well recommended from people I greatly respect. 

1) John Davidson

http://davidsonfirm.biz/

(Some may also be interested in their tax sale blog: http://parishtaxsales.com/

2) David Silverstein

http://silversteinlawplc.com/

@Adam S.

 

Thanks for the feedback, negative though it may be. Can you elaborate on why you would never do a tax sale again, even though you were successful?

You're the first person I've seen to suggest that the law is untested --- the law seems pretty clear. I spoke to several lawyers (I am an attorney myself but not in Louisiana) and did a lot of reading and it seems fairly settled that once the redemption period is over, an action can be brought to quiet title and take possession. The question is whether the action will be successful because of how murky the chain of title may be. Though, supposedly, the city fixed that with the most recent sales. Who knows.

My partner and I felt that it was worth the relatively small investment to see what happens. We bought 5 certificates, 1 has already been redeemed (without us contacting the owner), and with the other 4 plus the 2015 property taxes that we paid (with regards to your suggested strategy to not pay the taxes, that seems downright silly --- why would you purposely cede the first position lien? If you've already bought the certificate, there's no point in letting it go back to the tax sale...), we've put in $3500 total. Not much split between two people.

Of the 4 remaining, 3 are houses and 1 is a vacant lot. Obviously we don't know the interior condition of the places, but looking at them for the outside they seemed better than "worthless".

#1. A duplex in St. Roch worth between $75K-125K according to various real estate sites. According to crime stats, a low crime area. It seemed as if people were living there, though it's not in the best condition, it's certainly not "worthless".

#2. A house, also in St. Roch, worth between $60-$100K, also a low crime area. Can't tell if people are living there, as there seems to be a auto body shop operating out of the garage. That one could be dicey.

#3. A 1900 sq. ft house in Central City close to the Garden District worth between $90-$150K that appears to be occupied and looks in very good condition. Can't imagine this wouldn't get redeemed.

#4. A vacant lot in a neighborhood in Hollygrove surrounded by houses worth $100K-150K according to Zillow. With the lowest crime rating on Trulia. Seemed nice to me out there, but apparently even the mention of Hollygrove is enough to scare people. This is the one most likely to not redeem, I would say.

We are still debating whether to contact the owners. It is probably a good idea, but if there's even a 5-10% chance that they don't redeem and we can get title, that's worth it given the minimal outlay we have invested. Ultimately, we thought it was worth the risk, because worst case we're out a few grand, best case, we get property worth 6 figures, and most likely case, we pick up double digit returns for almost no work.

@Adam K.

Adam,

I shouldn’t have said I’d never do a tax sale again. Rather I am sufficiently skeptical and hesitant based on my own research, experience and conversations with more experienced investors. These other investors seem to think that there are enough risks and uncertainty with the law that they are not doing tax sales in New Orleans anymore.

Maybe “untested” is not the right word…I am not a lawyer, and it has been a while since I did my research, but I think that the concerns are legitimate because of several reasons. That is not to say you cannot make good money doing these. You can. I did…. It is just to say that these tax sales are not without risk, and the risk is potentially significantly more than your $3500 initial investment.

1) Not infrequently in New Orleans, properties are handed down in families through informal unwritten agreements and have not gone through probate. If that is the case, and the legal owner of the property is either dead or unknown, how do you provide good notice?

If good notice is not provided, the tax sale is basically null and void, and there is no time limit to the period in which an annulment may be brought. Some articles for you to read:

http://www.nolatitlecompany.com/tax-sale/

http://parishtaxsales.com/?p=150

http://parishtaxsales.com/?p=148#comment-329

2) If you are lucky enough to quiet the title and take ownership of the property, it is very difficult to get title insurance for the property, which may mean that you can’t sell it, or even refinance it to make improvements. See article: http://www.nolatitlecompany.com/tax-sale/

3) During the redemption period, what is your liability at the property? What if someone injures himself at your property? As the property’s deed holder are you liable? I know that some investors do take out either homeowners or liability insurance or both on their tax sale properties. You mentioned that one of your properties was a car service center, correct? What potential environmental liabilities would you inherit from this property?

4) If the property is blighted or requires any maintenance or improvements, you may be responsible for that. Even if you are not responsible, it may be in your interests to perform the repair if not doing so would mean potential liability or significant additional damage to the property (think leaky roof). Then if the property does get redeemed, I do not know if you would ever get that money back… See RS 47:2161 B(1). Also see this article: http://parishtaxsales.com/?p=434

R.S. 47:2161 B.(1) Notwithstanding any other provision of law to the contrary, in the city of New Orleans, if a tax sale purchaser has made improvements to abandoned or blighted property, as defined in R.S. 19:136.1, in order to bring the property into compliance with one or more municipal code ordinances prior to the property being redeemed, the person redeeming the property shall reimburse the tax sale purchaser for the costs of improvements required to bring the property into compliance with any such ordinances. The maximum amount of reimbursement for improvements shall be fifteen hundred dollars for abandoned property and three thousand dollars for blighted property. The maximum amount shall be per property per year.

I think for those reasons, most investors buy New Orleans tax sales for the penalty and interest. This is why I suggest that you may want to provide notice to the property owners. My strategy in my tax sale was to provide notice every year with clear instructions on how to redeem the property. I figured this gave the owner as much time as possible to get the money together to redeem the property. In the end he did, but did so literally days before the redemption period ended.

When I bought mine, I drove by the property before the sale, to assess the condition. It was an inhabited and very well maintained duplex in a nice area of uptown. After the tax sale, I did more research on the property, and I found out that the home was owned by three sisters who were all deceased. They had numerous offspring, and it would have been nearly impossible for me to identify and provide notice to all of them. Through more research, I found out that the property was inhabited by two brothers (one in each unit) who were sons of one of the deceased sisters. Both brothers were in their 70’s or so, and one of the brother was moving to Houston for cancer treatment. The other was deaf and legally blind (I’m not making this up).

Once I found all this out, I decided that taking ownership would not be in my best interests, and the only way I’d be successful was by the strategy I mention above.

You also mention in your second post that you only invested $3500. Keep in mind that if the owners wait until the end of the redemption period to redeem, then you could be paying 3, 4 or even 5 years of taxes on the property. I don’t know what the tax bills on your properties are, but the total outlay could add up.

As far as the strategy to not pay the subsequent years taxes, I don’t think its silly at all. I didn’t pursue that strategy, but I think it depends on what your goals are, and what type of properties you bought. The reasons why you would cede the 1st lien position are 1) you let someone else take the liability risks I mention above and 2) your first outlay of cash earns 17% (5% penalty plus 1% for 12months), each subsequent year you pay taxes, your additional money is only earning 12%. 17% is better than 12%. That is a better return, for less risk, and allows you to diversify into more properties… Those all seem like good reasons to me.

I hope that you find all this helpful.

Best of luck.

Practicing Louisiana real estate attorney with 8 years of experience in Louisiana tax sales here.  Hopefully I can provide some useful information for you all.

You will not receive merchantable title to a tax sale property by filing a suit to quiet title after the redemptive period ends.  Tax sales without adequate notice to the property owners before the tax sale are considered absolute nullities, have no legal effect, and can be declared null at any time.  Because of this, and the strong disdain which most Louisiana judges have for tax sales, it is nigh impossible to win a contested quiet title action.  Even if it is uncontested and you win by default, no title insurance company will insure your title, making transferring the property difficult.

There are ways to get merchantable title to tax sale properties, but none are guaranteed or inexpensive.

Adam S.'s strategy of sending notice to the tax debtors to encourage redemption is the best course of action.  I recommend not growing attached to any tax sale property and instead hoping for a redemption.

They definitely hit the nail on the head.. Especially Holly grove. I am a native of this area, and I hate the fact that I have to go to the City of New Orleans and renew my contractors license every year... The city government there is incompetent. Not to scare anyone off, but I would be very careful dealing with the The City of New Orleans.. From what I see, most of the best deals are in the warzone area literally... 

As they stated, most of the lots, inhabitable homes,(blighted),and doubles have been sitting a very long time and no telling how many liens and title issues  are on the property..

@Adam S. update...I used the letter you sent me. i sent it to both property owners i paid the property tax for! The first was a smaller amount of about $450 and i still have had no response to my certified letters. The other property, on which i paid the initial tax and then a second year tax (about $5500) , responded to the City and paid pretty quick!  I sent the letters this past october and by the end of Novemeber i had a check in hand and netted about $500+ in profit on the whole deal. These are both vacant pieces of land. 

I really appreciate the letter and advice!

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