Tax Deeds with Mortgages?

9 Replies

How can I find out if the title on a tax deed is owned by a private individual or if it was financed by a bank? 

Also, after you buy a deed is there a chance that the bank can take it from you if there is a mortgage still on the home? 

@Rhett P.

Good questions.  The answer may depend on the state where you are looking to invest.

In Texas, most liens and mortgages are wiped out by the tax sale so if you purchase the deed at or after the auction, the previous mortgagee or lien holder can only 'take it away from you' via redemption. A title record search should disclose who owns the property and any mortgages or liens that exist before the sale. That search is a basic part of due diligence for any REI.

That's a good question about back HOA fees. I'd check with a local RE attorney on that but typically (and again...this will vary by state) all liens filed of record are wiped out by a tax foreclosure EXCEPT Federal liens. That includes mortgages, local/state judgment liens, mechanic's liens, HOA liens, etc. You would probably have to check with the HOA to see if there are back fees associated with the property.

You can also research a few deeds back. If several people are currently on title then you might find a deed of distribution to show the property was inherited. This might mean that it is less likely to be redeemed because no one wants to pay the taxes owed.

Also if you check with the ROD (Register of Deeds) and you find a recorded mortgage, the bank might step in at the 12th hour and pay the taxes to protect their interest in the property. 

If it is a lower value property the bank or even Freddie Mac may choose to let the property go and write off the lose.

I own several Tax Deed houses that were formerly owned by banks or Freddie Mac.

In Texas, @Roy Oliphant is actually incorrect. The debt remains, however the lien holder cannot hold the property as collateral any longer, unless the prior owner files Bankruptcy within the redemption period, and sometimes beyond that period. Then the original collateral could be held up in bankruptcy court and awarded to the original lien holder. 

I would like to refer to a specific case involving a property in Fort Worth that was purchased at tax sale. Unfortunately, I do not know the names Two days after the redemption period expired, the original owner filed bankruptcy. A federal judge in Denver awarded the sold property to the lien holders and not the purchaser of the tax deed. Their reasoning was that a federal bankruptcy law superseded a state law and that the prior owner wasn't properly notified. The case is currently in the appeals process. HOA article

@Richard D.

WOW!  I will be following this one closely.

I suspect a case could be made based on the contestability issue invalidating the sale rather than the lien surviving the sheriff sale.  The sale may not eliminate the debt owed by the person but that is not very important to the investor as they are only concerned about obligations against the property.  Definitely a justifier for doing the due diligence.

However, I'm not sure how the article you referenced is relevant to properties bought at the tax sale.  While the property was sold by the constable to satisfy a lien, the plaintiff is listed as a company and not a taxing entity.  Thus it was a judgment sale and not a tax sale.  These do confuse people attending tax sales as judgment properties are sold at the same time.  This is why it is important to know who the plaintiff is when the property is called for sale.  The rules are different for judgments and taxes. 

@Jim Viens

In Texas there are a some non-Federal liens that are not cleared by the tax sale.  This include most any governmental liens; city mowing, demolition, etc., state child support collections, or a lien specifically related to funeral or last illness expense. 

@Roy Oliphant I actually attended the sale that this property sold at. It was presented as a tax sale by the deputy constable and read as though the taxing units where selling the property. I am very familiar with the events and have spoken to Ricardo many times about this property. I have even mentioned in previous posts, that there was part of a golf course that sold at the tax sale for $1250. I will see if I still have the list from that sale, to see exactly how it was listed.

The author of the article is a member of the HOA, and will present the article in a view that is beneficial to them. They also, have outstanding liens against the property, and want to see Mr. Hurd lose, just to protect their lien.

Also, let this be a lesson in doing your homework, to date, Mr. Hurd has spent over $50,000 in legal fees trying to retain the property.