Tax Sale property and SBA loan ?

13 Replies

Hi, I started purchasing tax liens at tax sales in Louisiana in 2010. I now have a few properties that have gone over the allotted 3-5 year redemptive period. I've followed all of the statues, sent notice etc.. I have one house that happens to have a SBA loan. I included the SBA in all notices that were sent, they signed for the certified mail but did not respond. I have a default judgement set up for next month for the property and the previous owner nor SBA have responded or opposed the lawsuit in anyway. 

Louisiana statues say that the mortgage will be terminated once I receive the default judgement next month and I should own the property outright. Since this is the first suit I am going through to quiet title on a tax sale property I am still not feeling 100% confident that this will go through. I know the SBA is a quasi government entity and wonder if they will find a way to appeal or annual my judgement after the fact? 

Does anyone here have any experience with SBA loans and tax sales? 

FYI, the owner of the house received  the SBA loan after hurricane Katrina, during which time they gave out thousands of disaster loans to home owners (nothing to do with businesses). The house has been vacant for at least 5 years and I am 100% the current owners haven't paid their mortgage since that time. Apparently the SBA is not in any hurry to foreclose on people.

From the Louisiana statutes:

E. The filing of the affidavit provided in Subsection D of this Section with the recorder of mortgages of the parish in which the property is located shall operate as a cancellation, termination, release, or erasure of record of all statutory impositions due and owing to the political subdivision prior to the recordation of the tax sale certificate, and of all interests, liens, mortgages, privileges, and other encumbrances recorded against the property and listed in the affidavit. Governmental liens and statutory impositions due to other political subdivisions other than the selling political subdivision shall not be canceled or terminated. The recorder of mortgages shall index the affidavit only under the name of the tax debtor and current owner.

F. Upon filing of the affidavit under Subsection D of this Section, the recorder of mortgages and recorder of conveyances shall treat as canceled, terminated, released, or erased, as applicable, all the liens, privileges, mortgages, interests, or other encumbrances canceled, terminated, released, or erased under Subsection E of this Section, only insofar as they affect the property.

My advice: stop talking about it until after the time has ran.

I would not be concerned. I am pretty confident GSEs are wiped out in tax sale. However i think they are likely to redeem. I think they have redeemed every time I have tried to foreclose on one. 

Will, I have a very similar situation in Mississippi. In Attorney Michael Pellegrino's book on New Jersey tax liens he states, other than federal tax liens "first in time, first in right" governs priority of a federal lien versus tax certificates. He goes on to say that if the federal government holds such an interest in the property a strict foreclosure is not permitted, and there must be a sheriff's sale at the end of the foreclosure process. Considering Pellegrino's statements I was wondering how your interaction with the SBA resolved. Please let me know. Would very much like to discuss with you.  Thanks!

Having dealt with tax liens a bit, at 26 months in MS a tax deed can be issued. Personally I have not had to negotiate with federal liens, but a friend in AL has and told me they usually will settle for approx 20% of face value.  The understanding is, they may get nothing or end up with a property that to them can be a liability.  

Darron,  Thanks for the info. I would be interested in speaking to your friend in Alabama in regards to their real world experience with federal liens on tax sale properties. If at all possible, could you find out if your contact would be willing to discuss this with me?  Thanks!

In Alabama, if there is a federal lien on property sold for unpaid real estate taxes, then the IRS (or whatever government agency has the lien, such as Medicaid, SBA, etc.) has the right to redeem from the tax sale in order to protect their own lien.  If they attempt to foreclose on their lien without first redeeming, they will not have good title. They MUST redeem.  They cannot simply take your tax sale property away from you.

The investor is obligated to provide certified mail notice to all lien holders. This includes mortgage lenders, IRS, judgment creditors, everybody. There is no time limit for WHEN to give the notice. But, whenever the investor gives the notice, the lien holder has one year from that date to redeem, or the regular 3 years that everybody has after the tax sale, whichever is longer.  If you give your notice one month after the tax sale, the lien holder has 2 years and 11 months left to redeem. If you give it 3 years or 5 year or 15 years after the tax sale, the lien holder has one year from that date to redeem.

Where most investors get in trouble is, they never give the required notice to lien holders. As a result, long after the investor has a tax deed and thinks they are safe, a lien holder can pop up and redeem the property. This is especially dangerous if the lien holder has made any improvements to the property. If the property contains a residential structure, then a redeeming party will also have to pay the value of what is called preservation improvements.  If the property is vacant land, or if it is commercial property, the redeeming party has to pay only for taxes and interest.  Even if the property contains a residential structure--a house for example--and the investors adds on to it or upgrades the finishes, the redeeming party does not have to pay for those.  Just preservation improvements, which basically means repairs. As a result, an investor could lose a lot of money if it does not send out those notices, and then the IRS or some other lien holder redeems.

If you want to speed things up and not wait a year, the IRS will usually release its redemption rights on a tax sale property, without being paid anything at all.  Here is a link for an IRS publication that explains the process:

I am NOT an attorney, or CPA so my opinion is worth what you are paying for it.  I doubt you will have a marketable Deed on the Property because your purchase cannot take precedence over that of a lien of the U.S. Federal Government.  The tax lien you purchased from the State Of Louisiana in 2010 in my opinion is inferior to that of a Federal Government entity.  You need a good Real Estate/Tax Attorney to give you guidance.

Curious to how you made out with the SBA lien? I am in a similar situation.

Same here.  I have purchased a property on a tax sale with an SBA  loan and  i notified them to addresses that were available on the liens but I need to make sure I notify the right office. Any ideas on this?  (i tried calling and got nowhere, albeit, I am not done with it) 

@Ed Mayo If I understand your question, why isn't your attorney handing the notifications?

@Ned Carey  I am doing most of the work myself. I have already done a few foreclosures of right to redeem and that's how I can put "sweat equity" on my deals. 

So how do you get title insurance? I don't mean to be insulting but are you aware of what a full title search covers, bankruptcy search, death records, judgement search, IRS lien search etc? 

For the little bit of money that an attorney charges I believe there are better uses of my time. That seems like a lot of work to me for a few thousand in "sweat equity"

If it is working well for you that is great. I just want to make sure you are aware of some of the pitfalls.

Thanks for your concern and no, I don't feel insulted.  

Title insurance. requires two main steps:  I do the first one, (foreclosure to right to redeem) and I ask the attorney to do the second ( quit title action).  I order the Title search from the some company my attorney does. I don't do them. 

I have purchased a couple of dozens of properties on tax sales  and each foreclosure of right to redeem costs around 2K.  So while learning the process to do just one might not make sense, for the number I have, it does, at least for me.   

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