New Texas Excess Proceeds law introduced - What is your take on this ?
How do you think this will affect previous owners and investors that their primary investing strategy is helping previous owner collect the excess proceeds or buy the property before tax sale and allow it to go to tax sale with hope of collecting the excess proceed?
|A BILL TO BE ENTITLED|
|relating to notice of excess proceeds following an ad valorem tax|
|BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:|
|SECTION 1. Section 34.03(a), Tax Code, is amended to read as|
|(a) The clerk of the court shall:|
|(1) if the amount of excess proceeds is more than $25,|
|before the 31st day after the date the excess proceeds are received|
|by the clerk, send by certified mail, return receipt requested, a|
|written notice to the former owner of the property, at the former|
|owner's last known address according to the records of the court or|
|any other source reasonably available to the court, that:|
|(A) states the amount of the excess proceeds;|
|(B) informs the former owner of that owner's|
|rights to claim the excess proceeds under Section 34.04; and|
|(C) includes a copy or the complete text of this|
|section and Section 34.04; [and]|
|(2) regardless of the amount, keep the excess proceeds|
|paid into court as provided by Section 34.02(d) [34.02(c)] for a|
|period of two years after the date of the sale unless otherwise|
|ordered by the court; and|
|(3)regardless of the amount, send to the attorney|
|general notice of the deposit and amount of excess proceeds if the|
|attorney general or a state agency represented by the attorney|
|general is named as an in rem defendant in the underlying suit for|
|seizure of the property or foreclosure of a tax lien on the|
|SECTION 2. The change in law made by this Act applies to the|
|disposition of excess proceeds of a property tax foreclosure sale|
|paid into court regardless of the date on which the foreclosure sale|
|occurred or the date on which the proceeds were paid into the court.|
|If on the effective date of this Act the clerk of a court is|
|retaining excess proceeds and Section 34.03(a)(3), Tax Code, as|
|added by this Act, applies, the clerk shall mail the notice required|
|by that subdivision as soon as practicable after the effective date|
|of this Act. The clerk may not distribute those proceeds as provided|
|by Section 34.03(b), Tax Code, before the second anniversary of the|
|date the notice is mailed. A claim for the proceeds made on or|
|before that second anniversary is considered to have been made|
|within the period provided by Section 34.03(b), Tax Code.|
|SECTION 3. This Act takes effect September 1, 2015.|
@Soji Oyenuga this bill if passed into law requires a change in the notification and payout process. This leads me to a question for you.
Why would a property owner want to allow their property to go to tax foreclosure sale? In the state of Texas, the minimum bid is going to be the lesser of the appraisal value or judgement rendered for unpaid taxes. Trying to collect on excess proceeds is a financial loss for the property owner either way.
If the minimum bid is the value, and if there are excess funds, the. The prior owner most likely could have sold the property for way more than the auction winning bid. If the minimum bid is the judgement value, and there are excess funds; wouldn't the same premise hold true? In turn the property is worth more than the auction value, and the prior owner losses money.
In Texas, only about 5-10% of the properties sell for excess amounts. This makes your strategy a 90% likelihood of losing money. With that percentages you have better odds investing at a Vegas Casino.
If passed, I do not think it will affect that strategy at all. It may even help those who are looking to find unclaimed property by putting it in a state database. Of the tax suits that I have personally seen, very few name the state in rem only. I do not think a large percentage of cases will be sent to the state. There is the likelihood that the state will be aware of money owed, but to what end? I think this is just a good record keeping bill, and is fair to those involved.
Speaking to the odds of making money; just make sure your wins cover your losses, and then some. You will be making money. I do the same with marketing. Every mailer doesn't turn into a deal, but my losses are more than covered by the ones that do pay out.
Keep up the good work Soji.
@Josh James , Thanks for your contributions and insight.
@Richard D. Thanks for asking for clarifications on how the strategy for excess proceed work. There are 2 ways, the investors/entrepreneurs that work the unclaimed properties. Josh already alluded to this, so i will explain the other excess proceed strategy here to best of my ability here :)
1. You may not believe this but the truth is that several property owners do not want their properties any more. The property have become a liability/burden for them and as a result they stopped paying property tax and willing to let the City/County "take it away" from them. The profile of such owners are usually out of state land owners - who have owned (or inherited) the property for a while and they think the property have little or no value. Just visit lots of rural counties (and even in growing cities) and you will see lots of properties available for Tax Sale. While the owner thinks their property is of no value, lots of people that are willing to pay good money are looking for that property. I am not talking about junk properties. I am talking about useful parcels of Land.
2. Ok, let me get into the numbers now. Assuming such property I described above have "as is" value of about $45,000 and there is about $2,000 back taxes. The county just posted the list of properties to be auction in about 8 weeks and this property is one of them. An investor sends out letter or call the the current owner, inform the owner that I am sure you know this property is going for tax sale, I will like to deed this property to me in exchange for $100. I will send the deed form for you to sing via a mobile notary (at investor's cost) and you just need to sign it. Lets assume the owner said yes.
3. The investor now have 2 options. Quickly pay off the back taxes ($5,000) and be the pride owner of this parcel of Land, or he can decide to no pay the back taxes and let the property go for tax sale. In this scenario the investor let the property go for tax sale. At the tax sale the property sold for $10,000.
4. Back to numbers again :)
- The property "as is" value is $45,000
- Back Taxes = $2,000
- Sales price at Tax Sale = $10,000
- Excess Money with County (Excess Proceed) = ($10,000 - $2,000) = $8,000
5. Richard this is the "letting go of property to tax sale" and profitting from it that I alluded to in the first post. The investor invest $100 (plus postcard marketing, notary service etc).. let say his total cost = $500. He got $8,000 back thats $7,500 profit (1500% returns)
While i used those numbers just to explain this strategy. I personally know investor that have used this strategy to create about $54,000 on 2 properties.
If this becomes law, it will completely stop what is already a difficult road for the property owner recovering of excess funds in Texas. I understand the motivation is to allow the state to have time to attach these funds should there be any type of claim the state can make (i.e., unpaid child support).
Texas already requires the use of a lawyer and proscribes a maximum fee of $1000 to recover overages. If one then has to also wait until the 2 year period expires without other claims taking precedent, no one is going to find a lawyer willing to take it on.
This is bad law. The state has the responsibility to pursue in a timely fashion. There is no reason to deprive someone of the funds that may be available to them just because the state doesn't keep up with the paperwork.
I agree with you Roy, This is an example of the state making it more difficult for people to get those surplus funds.
The state is obligated to notify each and every named interested party in writing that the sale will take place and that they need to take action if they want to stop the sale. If they have already notified all the potential creditors and they haven't stop the sale or come forward in any way, why would the owner of the funds need to wait two years to file a claim for the money? Why should the state get to keep the money for two years “in Case” a claim becomes due against that money? If it were my property that was sold I would want to collect my equity as soon as possible, not have to wait two years to see if I run up some bills and create liens against me that could go after my money. It’s big brother taking advantage of the little guys.
The state wants to discourage the overage business and ultimately keep all or most of the money.
Would you please post a copy (or give a link) of the letter that the investor uses to initiate the strategy you outline above.
I don t think it is the state trying to protect just any lien claimant. In Texas, the state is allowed to file a claim and get a real property lien for past due child support. My take on this is the state doesn't want this money disbursed during the two years to make sure there is every chance for them to claim against it.
BTW... I don't think this bill expects to change the fact that you must file the claim for the overages BEFORE two years. This just make it so you have to go through the expense and trouble of proving you are entitled to it but then you have to wait to get it. If you wait to file, you lose your right to it.
Seriously bad law!!
I have 2 corrections to make to this topic.
1. Soji, you can no longer buy a property right before a tax sale, let it go to sale, and collect any excess proceeds as the former owner. That practice was stopped by HB 406 in 2009. That year, the Texas legislature was hoodwinked into passing a Bill of Attainder. If you are interested in learning more about that particular regulation, email me.
2. The new bill introduced this year simply mandates that the District Clerk is to provide the Attorney General with notice of the deposit of excess proceeds only if the Attorney General or a state agency that is represented by the Attorney General is a defendant in rem in the tax lawsuit. If the Attorney General is a defendant in rem, the proceeds are NOT locked up for 2 years no matter what. Ya'll are reading this part incorrectly.
|"The clerk may not distribute those proceeds as provided|
|by Section 34.03(b), Tax Code, before the second anniversary of the|
|date the notice is mailed."|
This part is simply saying that if a claim is not filed before the second anniversary of the tax sale AND the Attorney General is a defendant in rem, THEN the District Clerk cannot distribute the money to the taxing units, as required by section 34.03(b), until after the second anniversary of the date the notice to the Attorney General was mailed.
In other words, the District Clerk can still distribute the money if so ordered by the court at ANY time regardless of whether or not the Attorney General is involved, but, if the Attorney General is an in rem defendant AND no person or taxing unit files a claim before the second anniversary of the date of the tax sale, the District Clerk must wait until after the second anniversary of the date which they sent the notice to the Attorney General BEFORE they may distribute the proceeds to the taxing units.
Essentially, all this bill will do is require the District Clerk to provide the Attorney General with notice of the funds if they are a defendant in rem and it extends the statute of limitations within which the Attorney General has to file a petition to the proceeds. That is all it does.
Old post, but I wanted to ask of those in the know. I know that the method of letting it go to auction won't work anymore as excess can only go to those who were a defendant in the judgement. Is this when the court date was set?> or when the lis pendens was recorded? Plus, if the investor got the deed and let it go to auction but cant claim the excess, who can? will it escheat by rule? The original owner ??
CLAIMS FOR EXCESS PROCEEDS.
(5) to each former owner of the property, as the interest of each may appear, provided that the former owner:
(A) was a defendant in the judgment;
(B) is related within the third degree by consanguinity or affinity to a former owner that was a defendant in the judgment; or
(C) acquired by will or intestate succession the interest in the property of a former owner that was a defendant in the judgment.
what is best way to get the list?
These attorneys never answer concise questions,they don't want anyone knowing nothing but them,I advise you to due your diligence and spread love with your team
This post has been removed.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing