My recent Tax Lien Auction experience in Tennessee - lost, but got an education

16 Replies

I went to my first ever tax lien auction on May 20, in Franklin County, Tennessee (my home county).  TN is a "hybrid" state -- if you win the auction, you get a first lien on the property, and if it's not redeemed withing a year (all the past due taxes are paid in full) you automatically get a deed to the property.  In 2015, the county was auctioning liens for overdue 2007 and 2008 county and city taxes, so all the available properties had at least 7 years of accumulated taxes.

I had so many questions before the auction.  Apparently, because this was auctioning taxes not paid in the first years prior to the financial crisis, there were more properties on the block than ever before in Franklin County - over 40.  It started off with the county attorney doing the first listing so it was slow. After that one (which no one wanted), a county sheriff, who's also a professional auctioneer, took over.  It got more hectic.

The properties were listed alphabetically by owner, so sadly for me, the one I really really really wanted was second on the list.  Before it started, I had no idea whether this property would be hotly contested or whether I'd be the only one interested.  Turns out, there were 3 other parties bidding against me.  I'd decided in advance my maximum bid (figuring the taxes owed, the value of the lot and the cost of scraping the existing house if it came to that).  I ended up bidding over my max bid, then dropping out to a very enthusiastic bidder I was kind of scared of.  We were the two left in the bidding, and he won.  Final bid was $5,500, and I figure the total taxes owed are around $5,000 including court fees and interest.

I'm kicking myself because, in hindsight, I see I didn't completely understand the process. As I understand it now, the winning bid pays the current taxes & interest due, and if the lien isn't redeemed by the owner in a year, any amount bid over the amount due rolls toward the future year taxes.  I thought my bid would be 2007-2008 taxes only, and the additional years would be the price of winning. What I think I understand now is that, for instance,, if the taxes due for the bid year are $500 and you win at $5000,  the extra $4500 is essentially pre-paid 2009-2013 taxes for when you get the deed. 

If the winning bid is over the total amount of accumulated taxes, interest and fees, you're all paid up and the rest is gone bye-bye.

The guy that beat me got the lot and the little old country farmhouse for the total of taxes due 2008-2013 -- his winning bid covered it all.  The point here is, because I thought my bid would only go toward 2007-2008 (and not subsequent years), I calculated my maximum bid way too low.

I'd been trying to contact the owners (out of state, inherited the house, in financial difficulty themselves) in vain since September 2014, so I am almost 100% sure that they will not redeem the tax lien, or even know it's been sold.  I was prepared to offer $15,000-$$20,000 to buy it outright.  If I'd understood that a $5,500 bid included ALL the back taxes, I could and would have gone much higher in the bidding.  

Theoretically, I could still have a chance at the property.  I could offer to buy the lien from the winner, making him a quick profit (but I suspect he wants the property more than a profit. He's already put a tarp over the leaking roof -- exactly what I planned to do, except I would have done it in brown instead of totally obvious blue).  

Or, I could swipe it out from under him. I have a year to continue to try contacting the owner for a purchase -- I could even get myself to Ohio and knock on their door and force the issue!  If I could do that, I might get the property for what I'd originally intended, plus the owners would get some badly needed money instead of a big fat NOTHING by losing it in the auction.  

I'm still trying to decide whether this is a dumb or smart move -- maybe the fates are trying to tell me I'm overextended right now and better deals might come along soon???

In probably a dumb move, I stayed after this property was auctioned and bid on another, a small lot next to a dentist's office and across from the railroad tracks in TinyTown, TN.  I bid, and won the lot, for maybe a bit over the total amount of the taxes due.  I'd researched it beforehand and driven past it the morning before the auction. It's tiny, but at least the burned down house on it has been scraped and it's an empty lot.  Taxes $69/year, so not too much of a burden.

Tips for auctions that I didn't know before -- 1) sit in the back, so you can see who's bidding against you. 2) try to get an understanding of how the payments are applied (I could have done this, but I had no idea what I didn't know, so I didn't know to find out -- ya' know??), 3) go to an auction in advance of one you want to bid in (I didn't have the chance, since Franklin County only does this once a year, and 4) pray the properties you want are at the end of the list so you have time to get your bearings before it really matters!!

So, I bid, I lost, I learned, I have a teeny lot in Cowan, TN.  Anybody want to build an office building next to Dr. Elkins the Dentist??

@Anna Watkins

Thank you for posting this valuable info. & congratulates on your winning.

I enjoyed reading your experience. I have never been to TN or attend any of their auctions. There are just too many counties & rules to learn from each. Since Franklin is your home county, you probably know the area very well. You may want to check out OTC. TN offer OTC, it's extremely benefit to locals that knows the area well. Hope this helps.

@Anna Watkins Thanks for sharing.  As @Tom Yung mentioned, the statutes/rules for all the states/counties are crazy to learn. I've looked at TN briefly in the past and I didn't dig deep enough to see how the bids are applied to the other outstanding taxes. Franklin is such a growing county - I know many people who are planning their escape from Illinois financial and political mess and Tims Ford Lake area is popular for housing value and better weather than northern IL.

When the time comes and you're past the redemption period on your lot, offer it to the property owners next door and other owners on the street.  You'll probably find a buyer quickly on your own that way.

@Jerry K. - Hmm, I never really thought of "foreigners" from Chicago choosing to move to Franklin County, TN!  But between Tims Ford on one end, Nissan in the middle and Sewanee on the other end, maybe I should investigate even more deeply.  I certainly saw some professionals at the tax auction. Thanks!

Congrats on getting out there!  I attend tax auctions all over Texas and every one is different; professional auctioneers at some, constable reading a script at others, etc.  Main thing is get out there and do something. 

Local knowledge is important.  I've seen people bid after admitting they've never even seen the property but 'did look it up on Google'.  LOL

Go - learn - progress - invest -repeat!

Regards,

Roy

txtaxsales.com

Great story and insight. Your story is very motivating. I am interested in TN as well because I went to school there and love the people and the State. Thanks for sharing you funny and frank but motivating story. I look forward to reading and sharing more of the same from other members here.

Christopher - Investor from Denver, CO

Here's a 4-years-later update.  After the 1-year redemption period expired, I received the deed to the small vacant lot.  Little did I know, this would put me in the graduate level program in Tax Lien investing.   Within the first year of ownership, I was contacted by someone who wanted to buy the lot from me, and we talked for several weeks.  I wanted to wait until after I'd owned the property for a year (tax purposes), but after that time, the negotiations fell through with the buyer. 

Turns out that was a good thing. When I advertised later, another interested buyer came along who was a little more savvy.  He alerted me to a mechanic's lien on the property for $25,000 (5 times the tax value), which gave me several days panic until a lawyer friend explained that these liens expire after one year unless a separate suit is filed to enforce the lien.  This one had expired a year or more earlier.  Phew!  One bullet dodged, and a lesson learned -- research more than just the tax situation before bidding.

Around this time I also learned that a Tax Deed isn't really a "clear title" for selling the property, because it's very difficult to get title insurance on a tax deed.  Yes, I own the property and can legally sell it, but the potential for competing claims of ownership is higher than usual.  Anybody (me or a later buyer) who built on the lot would risk losing it if a claimant won owner to the land underneath.  In order to get an insurable title, I have to submit a Quiet Title suit to county court, research to identify and notify possible claimants, and present the case to the judge.  This is standard procedure for real estate acquired via tax forfeitures (I no know), but the billable hours in the research part are high.  Attorneys I talked with all said their fees for the suit would be as much as or more than the value of the lot.  Great -- no real choice but to be my own lawyer.  I've done this in other civil situations (adoption papers, deeds, will, etc) so no problem. Except . . 

Research is slow -- turns out the owner of record has been dead for 20 years -- but I eventually identify 5 people I think might have reasonable claim to the lot (if they hadn't stopped paying the property taxes 8 years earlier) - four grandchildren, and the estate executor of the only son who survived the owner of record.  I figure out how to write the suit, file it, find out how to send the summons & notifications (the Clerk of Court is super nice and helpful with procedural questions (not legal advice) and even sends examples of successful Quiet Title suits in this county).  I get on the docket thinking it's uncontested.  But then one of the defendants answered the summons, the day before court.  Turns out, he's the one that filed the mechanic's lien, and wants to get paid something for all the years he spent mowing the lawn, and the cost of clearing the lot after the house burned.  He doesn't quite get that the lien is long expired, and was probably invalid in the first place because he's an heir and can't put a lien on his own property (and the one who decided to let it go for unpaid taxes in first place).  But we even don't get that far -- the judge (rightly) kicked the whole case back because there wasn't adequate proof that the other defendants had received the summons.  This is my fault, not taking this part seriously enough. 

At this point (almost a year after that court date), I'm stuck on serving the summons -- 4 of the 5 defendants have received it, but the 5th lives in Germany. Even though he has an American military APO address, he's not picking up the Registered mail package from the base.  And he doesn't answer my international calls anymore (when I get brave enough to try), I don't know if he's getting texts.  I really don't want to tick the judge off again by going back with inadequate documentation. It doesn't help that I tend to move at the speed of a glacier when there are roadblocks like this.  Too many more exciting and less scary things (buy a new rental property! sell another one!) jump to the top of the list.

Anyway, it's still lucky that it's a pretty cheap educational experience -- taxes are low, keeping the lot mowed doesn't cost much.  I've learned (and learned and learned) an incredible amount.  I have contacted a German attorney who explained some options when I get additional information.  Even glaciers get where they're going -- eventually.

@Anna Watkins

Great Education! I lived in TN for several years (Hickman County) and am considering retirement there...especially since there is no state income tax. I will be investigating Tax Liens soon!

@Anna Watkins Great Post Thank you so much for sharing. I have wanted to go to auctions and this give me more courage. We visited storage unit auction and I totally get the aggressive bidder scenario! 

May I suggest you consult with a TN real estate attorney to clear the cloud on the title?  I have have heard of other strategies to get a clean title.  This is a question for a professional though, thanks, Louise

I'm so glad I found this thread...albeit, a bit late! @Anna Watkins - thank you for sharing your experience. I've learned quite a bit from the quick read. I wish you all the luck with (and selfishly for further updates on) this particular saga.

Community members, if I may make a humble request: I am looking for tax sale information for Williamson County and can't seem to find anything past 2014. Most counties list their properties online, but a search for properties in Franklin, TN has proven a bit difficult. I will be calling the County Trustee's office to inquire further, but if anyone has any advice or has experience with Williamson County specifically, I really could use some help.

Truly, any and all information helps. Thank you!

It is quite possible that there's not going to be a tax sale.  I think I asked at the courthouse last year about Franklin County, and was told they haven't had one since 2015, when I first wrote. They had so many to deal with at that time, and so much followup, that they just weren't up for it.  As I recall, there were about 6-8 years of delinquent taxes in the 2015 sale.  Just call the county courthouse and ask. 

Originally posted by @Anna Watkins :

I went to my first ever tax lien auction on May 20, in Franklin County, Tennessee (my home county).  TN is a "hybrid" state -- if you win the auction, you get a first lien on the property, and if it's not redeemed withing a year (all the past due taxes are paid in full) you automatically get a deed to the property.  In 2015, the county was auctioning liens for overdue 2007 and 2008 county and city taxes, so all the available properties had at least 7 years of accumulated taxes.

I had so many questions before the auction.  Apparently, because this was auctioning taxes not paid in the first years prior to the financial crisis, there were more properties on the block than ever before in Franklin County - over 40.  It started off with the county attorney doing the first listing so it was slow. After that one (which no one wanted), a county sheriff, who's also a professional auctioneer, took over.  It got more hectic.

The properties were listed alphabetically by owner, so sadly for me, the one I really really really wanted was second on the list.  Before it started, I had no idea whether this property would be hotly contested or whether I'd be the only one interested.  Turns out, there were 3 other parties bidding against me.  I'd decided in advance my maximum bid (figuring the taxes owed, the value of the lot and the cost of scraping the existing house if it came to that).  I ended up bidding over my max bid, then dropping out to a very enthusiastic bidder I was kind of scared of.  We were the two left in the bidding, and he won.  Final bid was $5,500, and I figure the total taxes owed are around $5,000 including court fees and interest.

I'm kicking myself because, in hindsight, I see I didn't completely understand the process. As I understand it now, the winning bid pays the current taxes & interest due, and if the lien isn't redeemed by the owner in a year, any amount bid over the amount due rolls toward the future year taxes.  I thought my bid would be 2007-2008 taxes only, and the additional years would be the price of winning. What I think I understand now is that, for instance,, if the taxes due for the bid year are $500 and you win at $5000,  the extra $4500 is essentially pre-paid 2009-2013 taxes for when you get the deed. 

If the winning bid is over the total amount of accumulated taxes, interest and fees, you're all paid up and the rest is gone bye-bye.

The guy that beat me got the lot and the little old country farmhouse for the total of taxes due 2008-2013 -- his winning bid covered it all.  The point here is, because I thought my bid would only go toward 2007-2008 (and not subsequent years), I calculated my maximum bid way too low.

I'd been trying to contact the owners (out of state, inherited the house, in financial difficulty themselves) in vain since September 2014, so I am almost 100% sure that they will not redeem the tax lien, or even know it's been sold.  I was prepared to offer $15,000-$$20,000 to buy it outright.  If I'd understood that a $5,500 bid included ALL the back taxes, I could and would have gone much higher in the bidding.  

Theoretically, I could still have a chance at the property.  I could offer to buy the lien from the winner, making him a quick profit (but I suspect he wants the property more than a profit. He's already put a tarp over the leaking roof -- exactly what I planned to do, except I would have done it in brown instead of totally obvious blue).  

Or, I could swipe it out from under him. I have a year to continue to try contacting the owner for a purchase -- I could even get myself to Ohio and knock on their door and force the issue!  If I could do that, I might get the property for what I'd originally intended, plus the owners would get some badly needed money instead of a big fat NOTHING by losing it in the auction.  

I'm still trying to decide whether this is a dumb or smart move -- maybe the fates are trying to tell me I'm overextended right now and better deals might come along soon???

In probably a dumb move, I stayed after this property was auctioned and bid on another, a small lot next to a dentist's office and across from the railroad tracks in TinyTown, TN.  I bid, and won the lot, for maybe a bit over the total amount of the taxes due.  I'd researched it beforehand and driven past it the morning before the auction. It's tiny, but at least the burned down house on it has been scraped and it's an empty lot.  Taxes $69/year, so not too much of a burden.

Tips for auctions that I didn't know before -- 1) sit in the back, so you can see who's bidding against you. 2) try to get an understanding of how the payments are applied (I could have done this, but I had no idea what I didn't know, so I didn't know to find out -- ya' know??), 3) go to an auction in advance of one you want to bid in (I didn't have the chance, since Franklin County only does this once a year, and 4) pray the properties you want are at the end of the list so you have time to get your bearings before it really matters!!

So, I bid, I lost, I learned, I have a teeny lot in Cowan, TN.  Anybody want to build an office building next to Dr. Elkins the Dentist??

 Welcome to property tax investing.  Enjoyed reading about your experiences and story.


Can you believe that there are actually people who advocate investing in tax sales in many different states. As you have found out and many others have also replied, each state and even county is so different and it can take years to try to fully understand everything for that location. Why people wouldn't want to stick to one or two locations is beyond me. I can't imagine going online and bidding in tax sale auctions in 10,20 different states.

Originally posted by @Will Sifert :
Originally posted by @Anna Watkins:

I went to my first ever tax lien auction on May 20, in Franklin County, Tennessee (my home county).  TN is a "hybrid" state -- if you win the auction, you get a first lien on the property, and if it's not redeemed withing a year (all the past due taxes are paid in full) you automatically get a deed to the property.  In 2015, the county was auctioning liens for overdue 2007 and 2008 county and city taxes, so all the available properties had at least 7 years of accumulated taxes.

I had so many questions before the auction.  Apparently, because this was auctioning taxes not paid in the first years prior to the financial crisis, there were more properties on the block than ever before in Franklin County - over 40.  It started off with the county attorney doing the first listing so it was slow. After that one (which no one wanted), a county sheriff, who's also a professional auctioneer, took over.  It got more hectic.

The properties were listed alphabetically by owner, so sadly for me, the one I really really really wanted was second on the list.  Before it started, I had no idea whether this property would be hotly contested or whether I'd be the only one interested.  Turns out, there were 3 other parties bidding against me.  I'd decided in advance my maximum bid (figuring the taxes owed, the value of the lot and the cost of scraping the existing house if it came to that).  I ended up bidding over my max bid, then dropping out to a very enthusiastic bidder I was kind of scared of.  We were the two left in the bidding, and he won.  Final bid was $5,500, and I figure the total taxes owed are around $5,000 including court fees and interest.

I'm kicking myself because, in hindsight, I see I didn't completely understand the process. As I understand it now, the winning bid pays the current taxes & interest due, and if the lien isn't redeemed by the owner in a year, any amount bid over the amount due rolls toward the future year taxes.  I thought my bid would be 2007-2008 taxes only, and the additional years would be the price of winning. What I think I understand now is that, for instance,, if the taxes due for the bid year are $500 and you win at $5000,  the extra $4500 is essentially pre-paid 2009-2013 taxes for when you get the deed. 

If the winning bid is over the total amount of accumulated taxes, interest and fees, you're all paid up and the rest is gone bye-bye.

The guy that beat me got the lot and the little old country farmhouse for the total of taxes due 2008-2013 -- his winning bid covered it all.  The point here is, because I thought my bid would only go toward 2007-2008 (and not subsequent years), I calculated my maximum bid way too low.

I'd been trying to contact the owners (out of state, inherited the house, in financial difficulty themselves) in vain since September 2014, so I am almost 100% sure that they will not redeem the tax lien, or even know it's been sold.  I was prepared to offer $15,000-$$20,000 to buy it outright.  If I'd understood that a $5,500 bid included ALL the back taxes, I could and would have gone much higher in the bidding.  

Theoretically, I could still have a chance at the property.  I could offer to buy the lien from the winner, making him a quick profit (but I suspect he wants the property more than a profit. He's already put a tarp over the leaking roof -- exactly what I planned to do, except I would have done it in brown instead of totally obvious blue).  

Or, I could swipe it out from under him. I have a year to continue to try contacting the owner for a purchase -- I could even get myself to Ohio and knock on their door and force the issue!  If I could do that, I might get the property for what I'd originally intended, plus the owners would get some badly needed money instead of a big fat NOTHING by losing it in the auction.  

I'm still trying to decide whether this is a dumb or smart move -- maybe the fates are trying to tell me I'm overextended right now and better deals might come along soon???

In probably a dumb move, I stayed after this property was auctioned and bid on another, a small lot next to a dentist's office and across from the railroad tracks in TinyTown, TN.  I bid, and won the lot, for maybe a bit over the total amount of the taxes due.  I'd researched it beforehand and driven past it the morning before the auction. It's tiny, but at least the burned down house on it has been scraped and it's an empty lot.  Taxes $69/year, so not too much of a burden.

Tips for auctions that I didn't know before -- 1) sit in the back, so you can see who's bidding against you. 2) try to get an understanding of how the payments are applied (I could have done this, but I had no idea what I didn't know, so I didn't know to find out -- ya' know??), 3) go to an auction in advance of one you want to bid in (I didn't have the chance, since Franklin County only does this once a year, and 4) pray the properties you want are at the end of the list so you have time to get your bearings before it really matters!!

So, I bid, I lost, I learned, I have a teeny lot in Cowan, TN.  Anybody want to build an office building next to Dr. Elkins the Dentist??

 Welcome to property tax investing.  Enjoyed reading about your experiences and story.


Can you believe that there are actually people who advocate investing in tax sales in many different states. As you have found out and many others have also replied, each state and even county is so different and it can take years to try to fully understand everything for that location. Why people wouldn't want to stick to one or two locations is beyond me. I can't imagine going online and bidding in tax sale auctions in 10,20 different states.

I think CA is actually one of the best.. very cut and dry no redemptions etc.. My pet county starts tomorrow morning and time to redeem ends in about 30 minutes  there are 400 items last I checked.. its a big one.. the one I really wanted got redeemed yesterday though

In the old days we would be a player for probably 50 to 75 of these going.. now I just cherry pick if I can