Purchasing tax deeds from a private seller & quit claim deeds
Investor · Washington DC · Member since 2016 · 26 posts · 13 votes
Hello,
I'm looking into purchasing Alabama tax deeds from a private seller who provides quit claim deeds after about 60 days. What type of due diligence do I need to conduct to research these properties? The seller provides the property address, assessed and market values and lot size. I have looked up properties by address on zillow and found the information the seller provides and the zillow information a match, but I feel like I should be digging deeper for more information.
Second question: can I resell a property with a quit claim deed? If so, how much profit can I expect to make? My research tells me that I may not be able to get market value unless I quiet the title. If I choose not to do so, what are the risks for me as a reseller?
Thanks.
Aside from normal due diligence regarding any property, you will need to find out:
1. Are there still any outstanding redemption rights. Probably there are. They can extend beyond the 3 years from tax auction to tax deed, and often do extend that far. If the assessed owner or heirs redeem, you might get only taxes plus interest, and lose the excess over that paid to the wholesaler.
2. If the former owner gave a quitclaim deed for their rights, and the current owner sells or assigns the tax sale rights, did the correct person quitclaim? Did all of them quitclaim? If the tax assessed owner died, it can be tricky figuring out the identity of the legal heirs.
3. Was the tax sale void? Under the tax-certificate-to-tax-deed system used by all counties until very recently, a tax sale might be void if the owner died before the auction, or was foreclosed upon, or sold the property to someone else. In other words, the name called out at the auction was not the true owner. Only Jefferson County has a special law that protects it in such circumstances. If the tax sale is void, the owner(s) can get the property back by paying taxes and interest only. No payment due for improvements.
4. Has it been too long since the tax auction? If more than six years since the auction, and no investor has taken possession of the property legally and continuously and exclusively (more than just putting up a no trespassing sign) then the former owner can get the property back and pay nothing at all. There is some doubt about whether that six years is tolled (paused) while the property is on the state inventory, and no appellate guidance.
5. Was the most recent tax sale against another tax sale investor? In other words, is there any even earlier owner who might still have redemption rights, even if the most recent owner gives you a quitclaim deed. It is not uncommon for investors who want only interest income to simply stop paying the taxes and let the property go to auction again if nobody redeems. It is not uncommon for investors to get in over their heads regarding rehab expenses and simply dump out of the investment by not paying taxes and letting it go to auction, thereby cutting their losses.
There is a LOT of money to be made in Alabama tax sale properties, but you better know where the landmines are located so you can avoid them successfully.
@Jessica Howard I am not the expert here on Alabama tax sale. That would be @Denise Evans. But here is some more information about quit claim deeds, quieting title and reselling.
A quit claim deed give you no guarantee about the title. A perfectly legal quit claim deed can grant you NO RIGHTS to a property at all. However a quit claim deed may grant you all possible legal rights in a property. Only a full title search will tell you.
It is possible to sell a property with which you acquired via a quit claim deed, and the buyer can get title insurance. However you can only sell the rights you received. If you received bad title via the quit claim deed you can only sell with a bad title and they buyer will not be able to get title insurance. (or the title insurance policy will have an exception for the specific defect)
A quiet title action can clear up a title. It may or may not be necessary if you acquire via a quit claim deed. The issue is not the fact it is a quit claim deed, the issue is the quality of title that deed represents.
Now since you are talking about a tax sale, Denise may be able to shed some more specific light on the sitution.
#1....if you live in DC/Maryland area...I personally would not purchase AL tax deeds unless you know 100% what you are buying....see the property....know the property...know your exit strategy. Tax deeds/liens are tricky enough when they are near you and you can see them, feel them, know what's around them, know if they are buildable, know if they have utilities, know if they are occupiable, know if they are resellable, know the value. If they are vacant lots do you know the minimum lot size for septic for example. Do you know the minimum lot size for building? Do you know if they are in the flood zone? Do you know if there are any country requirements or city requirements for building....for example some of the bigger counties around me require 150ft of road frontage....basically to prevent thin mobile home lots.
99% of the time, I pity the people who buy long distance. Not saying it can't be done, but the experts here will tell you ...that is very very risky.
Not sure about Alabama, but I would suggest you best know your titles there and know your title company. In Texas for example most title companies don't like quit claim deeds...and normally make you wait anywhere from 2-4 years before reselling with title insurance....so you should plan to hold them that long. Also know your redemption periods and rights. For example in Texas you might buy direct for $10,000...this Zillow seller resells to you for $20,000, but the original owner might have 2 years of redemption rights at $10,000+penalty....so if they redeem, you would loose approximately $10,000. You will want to know how quit claims work in AL and if you will need to quiet title action to get a resalable deed. How much does that cost and how long does it take.
If you want to buy tax deeds/liens....look at doing it in your backyard. I expect you will be much more successful.
You have two great experts here.... @Denise Evans for Alabama and @Ned Carey for Baltimore Area who might give you more accurate or detailed answers and thoughts.
Aside from normal due diligence regarding any property, you will need to find out:
1. Are there still any outstanding redemption rights. Probably there are. They can extend beyond the 3 years from tax auction to tax deed, and often do extend that far. If the assessed owner or heirs redeem, you might get only taxes plus interest, and lose the excess over that paid to the wholesaler.
2. If the former owner gave a quitclaim deed for their rights, and the current owner sells or assigns the tax sale rights, did the correct person quitclaim? Did all of them quitclaim? If the tax assessed owner died, it can be tricky figuring out the identity of the legal heirs.
3. Was the tax sale void? Under the tax-certificate-to-tax-deed system used by all counties until very recently, a tax sale might be void if the owner died before the auction, or was foreclosed upon, or sold the property to someone else. In other words, the name called out at the auction was not the true owner. Only Jefferson County has a special law that protects it in such circumstances. If the tax sale is void, the owner(s) can get the property back by paying taxes and interest only. No payment due for improvements.
4. Has it been too long since the tax auction? If more than six years since the auction, and no investor has taken possession of the property legally and continuously and exclusively (more than just putting up a no trespassing sign) then the former owner can get the property back and pay nothing at all. There is some doubt about whether that six years is tolled (paused) while the property is on the state inventory, and no appellate guidance.
5. Was the most recent tax sale against another tax sale investor? In other words, is there any even earlier owner who might still have redemption rights, even if the most recent owner gives you a quitclaim deed. It is not uncommon for investors who want only interest income to simply stop paying the taxes and let the property go to auction again if nobody redeems. It is not uncommon for investors to get in over their heads regarding rehab expenses and simply dump out of the investment by not paying taxes and letting it go to auction, thereby cutting their losses.
There is a LOT of money to be made in Alabama tax sale properties, but you better know where the landmines are located so you can avoid them successfully.
@Ned Carey @Bruce Lynn and @Denise Evans many thanks for the rich dialogue around quit claim deeds and the squirrelly nature of investing in Alabama. Knowing that it can be lucrative to invest there, I plan to hold what I buy from the agent/wholesaler. The quit claim situation made me nervous though and I had more questions. I'm going to pose Denises questions to the seller and conduct additional due diligence with the county.
I have invested in liens in my backyard, and have been researching out of state tax sales for several months but haven't invested elsewhere yet. @Denise Evans can you recommend a title company and attorney in Birmingham? I think I read in another discussion that you retired.
Cheers everyone.
My law license is in Texas, where I was a litigator many years ago. I am retired from that, but still active in consulting and similar services in Alabama. If you need an attorney for deed preparation or litigation, I can refer you to someone. Otherwise, people mostly need consulting.