Tax Deeds in Texas

Tax Liens & Mortgage Notes
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Tax Deeds in Texas

Lorilyn B.
Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes

Hi all, this forum has been very informative so far and has put a few of the pieces together for me. However, I am in need of some clarification. (I hope we aren't limited on the length of posts :) )

My questions are specifically for Texas. From what I understand a tax deed sold by the county is basically a foreclosure? I was under the impression that the county is the first lien holder so when a tax deed is sold it wipes out all other liens. (I understand that municipalities and other taxing entities exist along side of the county, but it is my impression that they usually lump them together.) Yet I have run into people saying that you have to make sure there isn't a lien on the property. If a person files as bankrupt do you lose all of your investment? Also, what is the recommended ratio between how much you pay for the deed and the property value?

I could keep going but I think this is good for now.

Thanks,

Lyn

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Josh James
Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
12y

Lyn,

Great questions, and most of the answers are not simple ones. I am not an attorney, but I am an experienced tax deed investor here in Texas. Yes the auction is similar to foreclosure. You get possession rights, along with all other rights to the property after you purchase, with the exception of the right of redemption.

The county is not first lien holder. They are a superior type of lein in Texas. Their foreclosure will only extinguish liens that have been addressed in the tax foreclosure suit. Also there are liens that cannot be extinguished by the sale becase other government offices are superior to the county and other local taxing authorities. Some examples are federal tax liens, state child support liens, and epa liens. Do yo see the pattern there? All of those are higher authority government offices. The types of liens that are extinguished, if the lienholder is properly notified in the tax suit, include corporate liens like mortgages, and individual leins like a mechanics lien. Do you see the pattern there too? 

A bankruptcy can absolutely put a wrench in your plans. I have a friend who went through 5 years of that after he purchased one. He did not lose his ivnestment, bt he did become a party to the bankruptcy.

Now, for your last question, what you pay is up to you. It greatly depends on the property condition. Obviously you wouldn't pay a high price for a house that is unfinished on the inside. I have seen these from builders that walked away from a house. So condition plays a large role in your bid. Also keep in mind most of these properties have been sitting for years while back taxes accumulate, and then must go through the court and be auctioned. This usually means a lot of time spent vacant, and a lot of damage.

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  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    12y

    Lyn,

    Great questions, and most of the answers are not simple ones. I am not an attorney, but I am an experienced tax deed investor here in Texas. Yes the auction is similar to foreclosure. You get possession rights, along with all other rights to the property after you purchase, with the exception of the right of redemption.

    The county is not first lien holder. They are a superior type of lein in Texas. Their foreclosure will only extinguish liens that have been addressed in the tax foreclosure suit. Also there are liens that cannot be extinguished by the sale becase other government offices are superior to the county and other local taxing authorities. Some examples are federal tax liens, state child support liens, and epa liens. Do yo see the pattern there? All of those are higher authority government offices. The types of liens that are extinguished, if the lienholder is properly notified in the tax suit, include corporate liens like mortgages, and individual leins like a mechanics lien. Do you see the pattern there too? 

    A bankruptcy can absolutely put a wrench in your plans. I have a friend who went through 5 years of that after he purchased one. He did not lose his ivnestment, bt he did become a party to the bankruptcy.

    Now, for your last question, what you pay is up to you. It greatly depends on the property condition. Obviously you wouldn't pay a high price for a house that is unfinished on the inside. I have seen these from builders that walked away from a house. So condition plays a large role in your bid. Also keep in mind most of these properties have been sitting for years while back taxes accumulate, and then must go through the court and be auctioned. This usually means a lot of time spent vacant, and a lot of damage.

    7Reply
  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    12y

    @Josh James: Thank you Josh, you've helped a lot. On the last question I was thinking there may be a % rule like the 70% rule, etc. hehehe. 

    So, here's another question, or so. On a property that has been struck off, do you still have to worry about a superior/higher authority lien? If you have experience with them, have you found that the taxing entity that owns the property takes care of basic maintenance or do they just let it go to pot? The redemption period is from when it was struck off, correct?

    I hope I'm not being too trying :) Thanks!

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    The taxing entity will not do anything to improve the property because they will still get their taxes when it is sold, and you cannot get a clear deed until they are paid. I was at the Dallas tax office last week, and I look over a few tax deeds that have not been made public yet that will be listed for sale very soon, and I have my eye on a few high end proprieties.


    Joe Gore

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  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    12y

    You are not being trying at all! I am happy to help. Every county is different when it comes to tax sale auctions. I have a 25% rule, that is 25% of the tax appraisal value, which is usually a good starting point in my area. That same rule would not get me a single property is some counties (Travis for example) where the final bid is usually closer to 70% or even 80% of the appraisal value. 
    In my experience, the asset manager for the taxing entities will do the least maintenance required to meet local code. I often want to report our local asset manager to our code enforcement department for not maintaining those properties that have been struck off. Yes they let them go to pot! Yes, the redemption period starts from the stuck off date.

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  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    12y

    @Josh James: Ah, so you go there personally. I'm getting email updates from the law offices like Perdue Brandon Fielder Collins & Mott, Linebarger Goggan Blair & Sampson and so on, but these are for out of area sales like up in Dallas and down in Harris counties. I've been thinking of coming up there just to watch the auction at first and get some kind of clue as to how it all works. It may be a good idea to look at what they have while I'm up there, it's a long trip, so I'll have to make it as productive as possible. I'm shooting for making my first purchase on a tax deed at the November auction, but that's contingent on whether or not I end up purchasing a rental property down here. I hope I see you up there.

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    If you know what you are doing you can get the tax deeds at what is owed to the tax office, and this must be done before it goes to the auction.


    Joe Gore

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  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    12y

    As Joe suggested, there are means to acquiring the property prior to sale. I would caution you that many properties that go into tax foreclosure may have title problems. The tax sale may fix some of these problems. 

    Please be very careful and do your homework if you are seeking to acquire property prior to sale. I would not encourage a new investor to go that route, unless you are willing to invest/learn a lot more about Texas law, title, and estates. However, for a greater risk, there is typically greater reward.

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  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    12y

    @Account Closed: Well, I certainly do not know what I'm doing hehehe. A few years ago my sister asked about paying the taxes on a property that was getting ready to be sold, down at the county, and she was told the person who owed the tax would be very happy and not even owe her a thank you for doing it. It looks like a real estate attorney will be getting some of my money in the near future, just do I can get all of this straight. At least I'll know what questions to ask because it'll most likely be follow up questions to all of the fantastic information I'm already getting :)

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    @Lorilyn B.,

    Why would you pay someone else tax bill and all you are doing is stopping the auction and no benefit to you?


    Joe Gore

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  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    12y
    Originally posted by @Lorilyn B.:

    @Josh James: Ah, so you go there personally...

    Oops, I meant that for Joe Gore. 

    That's what I told her Joe. I know that I am so new to even the idea of doing this that I have a LOT of work to do. I have several books on the way, I'm going to set up a meeting with a RE Attorney, and I'll be meeting with a local agent to discuss options and available properties that would make good rentals. I was going to meet with a CPA that was recommended, but he appears to be an investor and not interested in working with investors for anything but doing straight up taxes.

    0Reply
  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    12y

    Lyn, 

    Also of note; you may not be able to get financing on these properties for a while after purchase It may be more difficult for you to sell them quickly too. Expect to hold them for a bit.

    2Reply
  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    12y

    Josh,

    I won't be able to get financing or a person wanting to buy it won't be able to? I don't plan on having to take out a loan for the deed properties, I have some money on hand. Still, why would it be difficult for someone to get financing if there is a clear deed? Is it because it wouldn't be for a high enough loan value? I'm asking that because my mortgage company just told me today that they wouldn't touch a refi on my house because the loan amount is too low and they won't touch anything under 75K. 

    I would definitely need to get financing on rentals, if I get them through regular means. I hope it won't affect that.

    0Reply
  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    12y

    Sorry it took me a bit to respond. Both you and someone wanting to purchase won't be able to get financing. There is a not a clear deed. The tax sale clouds the title. Call a local title company and ask if they insure sheriff deeds. Also no bank wants to loan on a property that someone else can redeem. The bank would be in a sticky position!

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Lorilyn B. 

      heed the advice that Josh is giving you.. based on your questions this is going to be a pretty risky adventure for you.. you really in IMO need to be somewhat of an expert at all facets of this form of investing.. I know you got to start someplace.. but maybe that place is buying a bare lot for practice  for a couple grand to go through the exercise..

    Just like court house steps investing.. your up against many who have been doing this for a long time know the ins and outs and are not going to let any kind of great deal get past them... 

    From my point of view if your going to get into the tax sale game your doing it as a business  if its your goal to pick up a few rentals.. then I don't think the risk reward is there as you could take a loss.. As opposed to buying clean title ready to go rentals.

    Just a thought. 

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  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    12y

    @Jay Hinrichs 

    Thanks Jay, I was actually planning on having the two separate. I'm looking for properties to purchase for rentals right now and I'm thinking of buying tax deeds as a separate function. I believe I found a good mentor for the tax deed half, thankfully, since it seems to be pretty sticky if you're not familiar with it. I appreciate everyone weighing in and helping me out.

    0Reply
  • Ndy Onyido
    Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
    11y

    @Lorilyn B. 

     Did you eventually get to buy the tax deed? what was your experience?I plan attending the Texas tax deed auction for Harris county first Tuesday of next month.

    Thanks

    0Reply
  • Karl James
    Land Investor · Midlothian, TX · Member since 2014 · 93 posts · 43 votes
    11y

    @Lorilyn B.  I have found the folks at Linebarger Goggan Blair & Sampson o be very helpful with questions I've asked about the tax sale process.  One thing I have done occasionally is hang around after the sale is over and patiently wait until the LGB*S rep has finished their post-sale paper work with the constable.  Then, introduce myself and ask if they have a just a few minutes for a tax sale process related question.  I usually get some great info and insight.  I ask them for a business card and follow-up later with a short e-mail thanking them for their time at the XYZ county tax sale Tuesday.  Then, if I have a brief question in between sales, I send them a note (usually as reply to their "you are welcome response" to my original "thank you" - emphasize we've connected before) or I give them a call, while trying to respect their time.

    My limited experience validates @Josh James  feedback with respect to title and banks.  I did run across a company (Tax Title Services - you can goggle them) that will do work to issue a certificate to specific title companies with which they work who will then provide title insurance - based on my conversations with them, it isn't cheap or quick ( $2 to $3k fee and 2 to 4 months for their part - then however long the title company takes).  They work with Boston National Title (who has an office in Dallas) to facilitate title insurance.  I talked to a guy named Bruce at Tax Title Services when I was contemplating a deal - I didn't successfully purchase the property at the tax sale, but did want to understand potential costs before I bid.

    2Reply
  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    11y

    @Ndy Onyido Thank you very much. I was nervous about whether or not I could ask, our local attorney office that does the tax deeds, general tax deed questions, so I just kept to the property I was interested in. I've been perusing the auctions listed at McCreary, Veselka, Bragg & Allen, P.C and Perdue Brandon Fielder Collins & Mott LLP. I really appreciate the resource you listed as well. We have a tax sale coming up this Tuesday and I will be going to observe. I'll follow your suggestion and see where it leads, it can't hurt to try.

    Also, I wonder if using a title research company, such as AFX Research would accomplish the same feat as using someone like Tax Title Services? AFX will do a basic for about $116 and an expanded search for about $160. Or am I misunderstanding and the $2K-$3K cost and time frame was for the insurance?

    (I hope I didn't break the posting rules)

    Regards,

    Lyn

    1Reply
  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    11y

    @Lorilyn B. Tax Title Services will do a few things to try and clear the title. They may attempt to research and locate those who own a redemption right. They may attempt a quiet title suit, or to obtain deeds from the previous owners. They may also attempt to negotiate for a release of lien from lienholders if that route would be cheaper than a suit. They do a lot more than just title insurance, and they are one of the few companies which offer such a service. 

    2Reply
  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    11y

    @Josh James 

    Thank you, that clears it up a bit. Definitely something for me to check into. There seems to be so much involved, which is another reason why I've been taking my time before trying to buy.

    0Reply
  • Ndy Onyido
    Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
    11y

    @Lorilyn B. 

    Thanks for the quick response. Like I did mention, I will attend next month tax deed auction in Houston, Texas. I am particularly interested in Harris County but have been told its very competitive. My target is to find a SFR for rental income. I am not sure if attending the auction with an experienced consultant will make any difference?

    By the way, how far/close is Harris county from your county/location?

    0Reply
  • Roy Oliphant
    Rockwall, TX · Member since 2014 · 380 posts · 211 votes
    11y

    @Lorilyn B. 

    You have received a lot of great information on this thread  We attend and buy at multiple auctions every month, fix, rent and then sell the properties to cash-flow investors who understand the issues with the redemption process that makes title insurance nearly impossible to get during the first two years.  It can be a rewarding way to invest but it is a lot of work. 

    One thing I did not see mentioned is to make sure what tax years are covered by the foreclosure.  It is not uncommon to buy a property at auction and then owe an additional 1-2 years of taxes that came due after the lawsuit was filed. 

    Also, remember that any money put into upgrading the property is fully at risk until the redemption period is complete.  If the property is redeemed, they do not have to repay the money you spend on upgrade.

    Still, Texas is a great place to buy tax deed properties.  We just completed our 100th tax deed property and looking to do a lot more of them in 2015.

    6Reply
  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    11y

    @Lorilyn B.  Roy certainly spotted what was missing. I concurr with him about repair costs being fully at risk, and what back taxes are owed. I bought one once with 4 years still due, even after I paid *a lot* at the auction. 

    @Roy Oliphant Please do not take this as a challenge, but as a question from a fellow tax deed investor. Can you please prove your statement about the repairs being fully at risk. As I understand it some repairs can be made, those which are necessary to prevent waste to the property. I read the Texas code, and there is not much help there. I went to my local law library and looked through the index for cases citing the tax foreclosure code, and couldn't find any which had tested reimbursement for necessary repairs cost. Do you have any resources I could go to to further educate myself?

    2Reply
  • Roy Oliphant
    Rockwall, TX · Member since 2014 · 380 posts · 211 votes
    11y

    @Josh James 

    I did not mean to imply all repair spending is at risk.  You are allowed to secure, preserve and maintain the properties during the redemption period and those cost become part of the redemption value.  You cannot enhance, upgrade or improve the property and expect to be able to recover those costs if it is redeemed.

    The issue comes from what meets the definition of secure, preserve and maintain.  For example, is adding a smoke alarm so you can legally rent it 'securing' or 'improving'?  Smoke alarms are not a major expense so it may not matter.  But you need to know the difference, or at least accept the risk, if you replace broken kitchen counter tops

    4Reply
  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    11y

    @Josh James & @Roy Oliphant 

    If one of you wouldn't mind answering, I just want to clarify my understanding. If I purchase a property that has a dwelling and it is unoccupied, that would not be considered homesteaded and would then have a 6 month redemption period? If I buy vacant land, that would also be 6 months? If I buy owner occupied, that would be homesteaded, whether they filed for it or not, and would have a 2 year redemption?

    I do understand that, as part of due diligence, I would need to find out what liens are on the property and how many years of taxes are owed. What I'm not understanding is, if I buy a struck off property, does the same rule apply?

    Also, does the redemption period on struck off property begin the day it was struck off or the day you purchase it? I believe I had read somewhere that it is the former.

    @Ndy Onyido 

    I live about 2 1/2 hrs from Houston, depending on what part I go to. I hear that The Woodlands is a hot market. If I remember correctly, it's on the outskirts of the greater Houston area, just north of Spring, but in Montgomery County. You may be interested in that as well.

    On a side note, I would like to say how much I appreciate the BiggerPockets community. I recommend it every chance I get.

    2Reply
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