Texas Tax Deed Questions

7 Replies

And I am educating myself about buying Tax deeds in Texas.I spent a week or two comparing all the state’s tax liens sales and tax deed sales…and came up with Texas.

Anyone here invest in Tax Deeds/Liens?

If so, can you confirm or reject my conclusion that this is the best state for tax deeds?

Also I have a very important question (or two) about buying Texas Tax Deeds off the “struck off” list.This is important to me because my goal is to put an offer in on a house and immediately begin fixing it up.This can be a problem because there is a very small possibility that the owner can redeem, and I can lose a significant portion of any money spent on repairs/upgrades.

My first question is, WHEN does the clock start counting on the 6-month redemption period?Usually, it starts when you buy the house at auction and record the deed.But I am hoping that for “struck off” properties the clock starts counting on the date that the sheriff tax deed is recorded.The actual wording of the Texas tax code is…“the owner's right of redemption may be exercised not later than the 180th day following the date on which the purchaser's or taxing unit's deed is filed for record.”

I can’t get anyone at the law firm running the auction to answer this seemingly very basic question…that is, what does “taxing unit’s deed is filed for record” mean.Ha!THEY don’t even know!

My second concern is, if the property IS, for some reason, redeemed…what repair costs are reimbursed (to me) and what repair costs will I just have to eat?Will the redeemed owner get the new carpet for free, will they get the paint for free, will they get the new counters I installed for free?The wording in the Texas tax code is that the tax deed holder will get reimbursed (plus 25%) for money expended "for maintaining, preserving, and safekeeping the property."

But what counts as “maintaining”?Carpet and paint?What counts as “preserving”?New countertops?What counts as “safekeeping”?

And what doesn’t count in a rehab!?

I don’t want to spend money only to have all the improvements go to the owner for free when they redeem!That is a horrible business plan.

If nobody is familiar with tax deed then this post will be pretty boring…however, I am hoping in this group of “creative” investors there are some out there who know the answers to my questions.

Thanks!



Remember that every county has their own rules that can vary...read carefully through each specific county’s rules, as well as FAQ’s. Many of the questions may be addressed there. It’s imperative to do thorough due diligence before selecting a property. Contact a realtor for sure that can take a look at the physical location for current condition, and that may not be enough to tell the inside conditions. The 180 days appears to begin when the deed is actually filed in your name, which is likely the date the county confirms your offer has been accepted. As far as the maintainance money, assume the lowest possible amount, whatever they can refuse to pay, they will. Probably roof repair, but not replace, structural integrity, and anything that requires repair for leaks, but not cosmetic. Best policy is do nothing til you actually have final deed in hand past redemption date.

Texas is a very attractive tax deed investing state. The 180 day redemption period applies to non-residential property, for residential property it is 2 years but if redeemed in the 2nd year 50% is owed back. Most people investing in tax deeds in Texas want the property but you cannot get a title policy until the redemption period expires so you would have to live in it or use it as a rental, no flipping.   Struck off properties are a little tougher because nobody buys them at the auctions so they are truly the bottom of the barrel. Plus you have to usually put up a deposit to make a bid (10%ish) and the county will hold that money until the bidding is closed. If you don't win the bid they have something ridiculous like 2 months to give you the money back. 

Repairs made to make and keep it habitable are included in the redemption which is why it is a good idea to get an inspection so you have proof. Rent it out for 2 years then make the nice upgrades for higher rent or to sell/refinance. 

I am part of an investing group that invests in tax deed properties and helps out of state investors acquire them. Shoot me a message and I can give you more details. 

Jeff, I agree as I have been buying tax deeds in Texas beginning in 1992.

I can answer your questions but as most things about tax sales here, there are no short answers.  Best to send me a PM and lets arrange to talk on the phone.  I will be happy to help you.

Arnie


@Jeff Klein This is what I have found in my research.

1) Redemption period is 180 days or 670 days, the latter is to be used if they had a homestead tax exemption filed on the property.

2) If redeemed, only holding costs (tax, utilities, basic maintenance like lawn care or other similar services) and initial purchase. Upgrades like carpet, paint, and new roof would all be excluded from basic maintenance of a house.

3) The period starts from the transfer of the deed into the owner's name that purchases the home from the taxing entity. I think your question about struck off is interesting but from what I have seen it is still in the control of the taxing entity so the clock on redemption would not have started.

4) If is very difficult to transfer title through a title company with title insurance on homes that have not hit the two year mark even if there was no homestead filed. There are companies out there that will do it and I had a partner struggle with this earlier this year. This is why a large number of tax lien sales are held as rentals and not flips. Do the basic upgrades and then just rent it out. If you lose the house to a redemption, you have your cashflow up to that point and your purchase with basic maintenance plus 25% to fall back on. You hopefully won't lose much in that gamble but that is what all tax liens are, a gamble.

Plenty of good advice here. I would counter your statement " very small chance of redemption" Why do you say that? In Texas, plenty of investors will offer to help the homeowner redeem a property if there is upside equity in the home. They use that money to redeem from you and get the property back.

Not sure if Texas is the best state or not, but here are a few ideas.

There's not really much of a struck off list in most places.  

Every county handles this a bit differently.  Some allow you to bid immediately after the sale....some don't allow that...some put them in the auction again in the future one or two times, before they really hit the struck off list that you could bid on.  I think there are a few places that hold them for a couple years to get rid of the redemption /contest issue and then resale them either at auction or on the struck off list.

So you want to know what is the situation, before you immediately begin fixing the house.   You want to know what the redemption period is, if any before you start fixing.  If for some chance there is a redemption or contest of the sale, you are only limited to recovery of your purchase price plus the penalty and repairs that were due are safety, security, or preservation of the property.   For example if you had a bad roof, you might be able to put on a new roof to preserve the integrity of the property, but you might not be reimbursed for paint, tile, carpet if it was not needed..to protect the safety or security of the property.

Redemption are probably rare....but they do happen.  I have one going on right now.

Some say the redemption period is 6months, but I think in reality is 2 years.  Redemption period starts once the deed is filed with the county in your name in most cases.  As mentioned above sometimes the taxing entity will strike off in their name and then not resell it until the redemption period is over and then if you buy there would be no redemption period.

You are correct about not getting straight answers.  That is because most of the time you won't talk to anyone who really knows...and often the people you talk to at the law firms are not attorney's or even paralegals..sometimes they're just office staff.   Not a slight at all...some know plenty and share plenty, but not always.  Sometimes the taxing entities don't know.  I called one county this month about the December sale and the only person in the office said there was no sale.  I pushed and pushed and then she said the Tax Assessor is out until 12/3 so they couldn't have a sale on 12/4.  Finally was able to confirm there is a sale.

So after you buy at the sale or even after the sale it may be anywhere from a couple of days to maybe 4 months before the deed is filed.  Normally about 30 days in my experience, but had one last month filed same week, and another one last year took about 4 months or maybe longer.  So the time period, either 180 days or 2 years doesn't start running until the deed gets filed.   Working on one now that has taken about 3 months to get the deed.

What counts.....well you have to think of what a judge or jury might find in a court of law.  I probably would not want to test these theories for fear the decider wouldn't agree.   Every expert I know says don't rehab them....change the locks, fix the leaks, repair the broken windows, but don't replace the carpet, the countertops, etc.  They often tell you that at the sale is well.  If it is a vacant lot, don't build a house...until the redemption period is up....I'd say until 2years is up.  

Be aware it is not only the owner that can redeem, but someone who purchases their rights.  There are plenty of people watching...you make the house really nice, maybe we hunt down the prior owner, give them $1000 for the redemption rights and buy the house back from you.  Believe me...there are people watching.

@Jeff Klein I know your original OP was 4 months ago but Galveston county has a substantial struck off list. I have bought properties from it myself. Be advised though you need boots on the ground as they may or may not let you build on bare land if it is wetlands. They will still be glad to sell it to you though. Redemption is 2 years if it is a homestead. 6 months otherwise. Galveston has a lot I assume because there are people that buy a house and can no longer afford the cost of a vacation house and let it go.