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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  • Richard D.
    Investor · Fort Worth, TX · Member since 2013 · 309 posts · 150 votes
    10y

    @Chris Soignier Most SFR that are sold on the courthouse steps are not homestead properties. Approximately 70% of these types of properties that actually make it to the sale are not homestead. The majority are abandoned properties owned by deceased persons, that have fallen in disrepair and the family of the owner no longer wants to care for nor go through probate to settle the deceased estate.

    The majority of homes that are homestead, are typically withdrawn prior to the sale. This is especially the case if there is a mortgage or the owner is still residing in the property. Texas is a state that allows mortgage lending for property taxes (not same as escrow aka "tax lien lending").  Plus owners age becomes a factor as well. 

    2Reply
  • Ryan Snelson
    Investor · Austin, TX · Member since 2015 · 27 posts · 32 votes
    10y

    Is the 2 year contestability period a law/statute or just a title company standard?  I purchased a tax deed in August of 2013, I then sold the property with owner financing after the 6 month redemption period (this was not homestead/agricultural).  The people who purchased from me are now trying to refinance and are being told that they cant get title insurance for 4 years from the tax sale date because they can't prove that a mortgage holder prior to the tax sale received proper notice of the foreclosure.  I have talked to some other investors who have been told similar timelines for tax foreclosed properties.

    If anyone has used a title company recently to write a policy 2+ years after the tax sale date please PM me with the details.

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  • Lorilyn B.
    OP
    Police Dispatch · Bastrop, TX · Member since 2014 · 27 posts · 7 votes
    10y

    @Ryan Snelson 

    A company called tax title services claims it has developed a process to obtain title insurance on tax deed properties without the need to file quiet title actions or to wait out statute of limitation periods. I checked into it for a piece of land I own and the service is about $1400, I was thinking of doing this when I have a buyer. Maybe they can look into a service like that.

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  • Andy Plattner
    Teacher, Business owner · Port Isabel, TX · Member since 2015 · 26 posts · 7 votes
    10y

    Hi.  I am looking to maybe expand into Tax Deed Purchases via auction in our county down in South Texas.  It is my understanding that the minimum bid will cover certain liens ie irs but other liens will fall off such as Child Support or a local contractor since the deed goes to another property owner.  What Liens normal stick with the deed and is the responsibility of the new owner?

    What is the purpose of a title search?  it may be expensive to do it at the title company.  Is there a less expensive way of doing it?

    Thanks

    Andy

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  • Chris Soignier
    Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
    10y

    IRS liens take precedence over all, and a county auction won't wipe them out.    I believe other liens would in general be wiped out at auction, though I'm admittedly not an expert in auctions.

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  • Stormy McGoldrick
    Willis, TX · Member since 2017 · 5 posts · 0 votes
    9y

    Hello All, 

    I know this thread maybe old but I have a few questions- I have researched and spent quite a bit of time but I still want validation. I'm looking at a 100% real property. No home, just land undeveloped.. and from what I can see on the appraisal district site there's no homestead or it's not being used for agricultural... therefore in TEXAS it would be the 180 day redemption period after that it would be free and clear mine? Would this mean I'd no longer have that cloudy title and it would be clear? 

    I'm looking to purchase in order to use the land as collateral for a builders loan in the future and totally okay with waiting 6 months or more. No I am not that naive I am looking at the property physically, it's being sold by the county and I am in the process of verifying that their are no other liens against it such as higher government Because I obviously need no issues. I have looked into what the property appraised for this year and I'm liking my odds. Is there anything I'm missing out on? I'm trying my best to do my due diligence to buy property at a good rate and Be able to use later for collateral? Am I total of base? 

    -stormy 

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  • Ryan Snelson
    Investor · Austin, TX · Member since 2015 · 27 posts · 32 votes
    9y

    Stormy, after the 180 day redemption period you will still have issues with the clouded title.  If you want to use the land as collateral for a builders loan you will either need to hire an attorney to do a quite title suit, or use a company like Tax Title Services (I'm not sure if there are others) to certify that the foreclosure was handled properly and then use one of their partner title companies to get title insurance.  I used Tax Title Services recently on a vacant home lot I got at tax sale and it was about $2400 and took about 6 weeks for them to certify the title.  Then you still need to pay for title insurance based on the value of the property.  So make sure to factor that into your costs.

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  • Stormy McGoldrick
    Willis, TX · Member since 2017 · 5 posts · 0 votes
    9y

    Thank you for your reply Ryan. Also because I am a newbie at this. The property I was looking into has an undivided interest? Def. not something I want.... but for educational purposes Could you shed some light on that? And how can I Ensure the next piece of property that I'm interested in doesn't have it? Is there a site? My goal is before I put a bid in on something I want to know what odds I'm up against. Is there a way to verify their are no other federal liens prior to biding? Making sure there's no undivided interest? 

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  • Ryan Snelson
    Investor · Austin, TX · Member since 2015 · 27 posts · 32 votes
    9y

    I think you are wise to stay away from an undivided interest situation although to be honest I have not come across that very often.  How did you find out about it this time?  Occasionally I have seen at auctions where the legal description will be for a 50% interest in a property, but other than that I'm not sure how you would check for that.  

    If you are new to tax foreclosure investing I would highly recommend the "Texas Houses for Pennies" course by Darius M. Barazandeh.  In addition to being a thorough education about how the tax foreclosure process works, It has a great module on lien research where it takes you step by step how to search online to find liens.  I think it was a couple hundred dollars when I bought it, but that was a few years ago now.  If you are seriously considering bidding on property I think it would be money well spent.

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  • Stormy McGoldrick
    Willis, TX · Member since 2017 · 5 posts · 0 votes
    9y

    Thank you Ryan! And the Law firm that's handling the resale (strickoff) let me know. But I find it odd cause on the appraisal site it said 100% owned-either way it's a sketchy move and I'm trying to do everything in my power to get it right. Also in regards to checking on other liens and verifying that there aren't any-is there a certain website or do you recommend just asking a title company to do a title search before I purchase to give me a full detail? I would hate to get all excited about it then find out later there's much more owed then what I bargained for? i will look into that course and don't have a problem getting that but I also don't want to spend 100's of dollars checking titles every time I'm just "interested" in a property? Also in your opinion are the resale/strikesales a good or bad investment? I mean the land appraisal looks good but it went into the school districts trust in 1997.... could this be concerning that it hasn't sold since?? Or is it sometimes  common for sales to be available even after all this time 

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  • Ryan Snelson
    Investor · Austin, TX · Member since 2015 · 27 posts · 32 votes
    9y

    You need to go to the county clerk to find out if there are any liens on a property. Many, but not all counties have this info online.  The full scope of doing a title/lien search is sort of beyond what I can cover in a post, but essentially you need to start with the current owner(s) and see if they have any liens in their name and then go all the way through each name in the chain of title.  In my opinion, the liens that are most likely going to get you are city liens for mowing and demolition, and the best way to find out if those exist is to call the city (assuming the property is in city limits) and ask them if they have any liens on the property (typically it is someone in the finance department you will need to speak to).  It is also worth asking them if they are ever willing to negotiate the amount owed.    

    I have bought some good deals at resale, but you need to be extra vigilant with your due diligence, sometimes there IS a reason that nobody bought the property the first go round (no road access, environmental issues, etc).  Often times though the taxes owed were just too high for it to sell at the first auction, and once the price is reduced at resale, it makes more sense as an investment.

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  • Josh Carr
    Wholesaler · Lehi, UT · Member since 2015 · 333 posts · 144 votes
    9y

    @Ryan Snelson In Texas the proper term for quieting the title is to try and suppress the title.  Once you have done this, which is a law suit by the way, then the cloud of tax deed goes off the title, a title search is performed and you will know that you can go forward and sell the property.  If there has been improper notification by the county to the property owner, mortgage company, etc. then you will need to serve notification to all interested parties and then your time begins.  It may set you back in time but that is something you can check with the county on to see if they have notified all those that are part of the records for the property you bid on.  Once you know if they have received notification by the county and or by a constable if needed then your clock for the redemption period begins.  A structured property will not go up for sale unless it is 5 years delinquent.  If someone cannot pay their taxes in 5 years then it is slim to none, not that it can't be done, that it won't be redeemed within the 6 month period.  It is important to make sure that all interested parties have received notification of the results of the tax sale so they have the redemption period to come forward and claim their property.  In case of a mortgage company they will have first right of refusal for redemption.  As far as an IRS lien is concerned it is equal to a tax lien and both are first position liens.  If you are the winning bidder on a property that has an IRS lien then it does not go away.  There are a couple of things you can do about them which is a process but not impossible. If you decide to file for a disposition with the IRS then they will have 120 days to respond otherwise they have no claim on their right to redeem.  Or, you could type up a letter, I have shared this info before, and send it to the appropriate group and ask the IRS to release their right to redeem. They will let you know if they will settle and what the amount is and you can go from there. Often times the settlement is still worth the property acquisition and although it is a process it can become a niche for someone interested.  Most people run from them.  

    One thing about resales or struck off is that if the taxes are delinquent for more than 15 years you can pretty much name your price.  The struck offs may be handled by a sealed bid. The resale will be handled by another auction but the prices will be lower.  Since they have their auctions the first Tuesday of every month, if they have auction, there are many property that go up for sale all of the time.  Some months are better than others but it brings me to the point of the properties not wanted.  There is so much time for the auction and so many properties that it is possible to have things "leftover" that are still good.  

    Depending on your goals, a homestead exempted property can be a great investment.  If you are after the interest a homestead exempted property will give you more time and greater interest.  The redemption period is up to two years.  After the first year the interest is increased to 50%.  That's a nice interest rate and the two year window gives the property owners enough time to pay it back if they don't want to lose their property.  Keep in mind the homestead exempted property is someone's primary residence.  

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  • Stormy McGoldrick
    Willis, TX · Member since 2017 · 5 posts · 0 votes
    9y

    Thank you both!!! I'm looking at buying non homestead or agricultural cause I only want the 6 month window.... So once we buy it from the resale we would then want to focus in on getting the cloudy title cleared by whatever means necessary... from the two options stated by Ryan.... This would be our first, so we are very hesitant and trying to make the right moves in the correct order... My goal is making sure I get decent property for a good price but it biting off more than I can chew if there's other things from the past that come up during the process. So basically the county clerk and city would be the people to call and verify that there aren't any hidden things and that would basically cover it??

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  • Ryan Snelson
    Investor · Austin, TX · Member since 2015 · 27 posts · 32 votes
    8y

    Stormy,  You will not be able to just call the county clerk and ask them if there are any liens on 123 Main St. like you can with the city.  You will have to dig through the records yourself and it is easy to miss things, but it is a skill you are probably going to need to learn to have success in tax foreclosure investing. For your first deal you should probably order a title report from a company like Pro Title USA or a local title company to verify what you find out on your own.  It is going to run you around $100, so like you said, you can't really do it on every property you are interested in, but if you are just focused on one resale property that you think you seriously might purchase it is probably a good investment.  If nothing else it will be a good way to check how well you did at finding liens at the county clerks office.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    8y
    Originally posted by @Josh Carr:

    @Ryan Snelson 

    ...  As far as an IRS lien is concerned it is equal to a tax lien and both are first position liens.  If you are the winning bidder on a property that has an IRS lien then it does not go away.  There are a couple of things you can do about them which is a process but not impossible. If you decide to file for a disposition with the IRS then they will have 120 days to respond otherwise they have no claim on their right to redeem.  Or, you could type up a letter, I have shared this info before, and send it to the appropriate group and ask the IRS to release their right to redeem. They will let you know if they will settle and what the amount is and you can go from there. Often times the settlement is still worth the property acquisition and although it is a process it can become a niche for someone interested.  Most people run from them.  

    ...

    I am not familiar with the lien priority rules in TX; but I do believe that IRS liens do get in line by time just like any other lien. The only differing characteristic of an IRS lien that is set by federal law is the fact that IRS liens come with redemption rights. Federal law actually gives the IRS redemption rights at least equal to what the property owner gets, or a minimum of 120 days - whichever duration is greater. So if a homeowner gets 180 days, when there is an IRS lien on that property the IRS would also get 180 days.

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  • Stormy McGoldrick
    Willis, TX · Member since 2017 · 5 posts · 0 votes
    8y

    Which department or who would I talk to to verify undivided interest? The law firm handling the property im now looking into doesn't have the complete file yet so therefore they have no info on it. I'm just trying to make sure I'm not wasting time 

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  • Account Closed
    Houston, TX · Member since 2017 · 12 posts · 3 votes
    8y
    This may have been answered already, but I have bought several struck off properties. In my experience (four under my belt at this time), you are the owner. Period. I have not had any problems with possession of the properties, nor has there been any other liens. If you want to do some research before you purchase, you can go to this website (iDocket.com). You pay for credits to do research on the deeds for the property. It can be a rabbit hole of find one deed after the next, but you can get a pretty good picture of the chain of deed filings. I believe the records are from 1980 forward, so anything since that time will most like be at the county clerk's office. Also, you will need the document and page numbers (usually those are on the county appraisal district's website) for that property.

    Good luck.



    Originally posted by @Lorilyn B.:

    @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!

    0Reply
  • Account Closed
    Houston, TX · Member since 2017 · 12 posts · 3 votes
    8y
    Once it is struck-off and sold, there is no right of redemption. You will get the deed once all the payments and paperwork is processed.

    I cannot speak to other liens, but IN MY EXPERIENCE (read: not a lawyer, so this is just my experience), they die at the sheriff's auctions.


    Originally posted by @Stormy McGoldrick:

    Thank you both!!! I'm looking at buying non homestead or agricultural cause I only want the 6 month window.... So once we buy it from the resale we would then want to focus in on getting the cloudy title cleared by whatever means necessary... from the two options stated by Ryan.... This would be our first, so we are very hesitant and trying to make the right moves in the correct order... My goal is making sure I get decent property for a good price but it biting off more than I can chew if there's other things from the past that come up during the process. So basically the county clerk and city would be the people to call and verify that there aren't any hidden things and that would basically cover it??

    1Reply
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