Title Insurance on Tax Sale property

11 Replies

I acquired a house by a Sheriff's Deed at a tax sale for unpaid taxes here in Texas.  It was not a homestead, which limits the redemption period to 6 months.  As a homestead in Texas it is 24 month redemption period.

QUESTION:  At what point will a title insurance company issue a title policy?  In other words, to sale the house and to have an owner's title policy, and a mortgagee's title policy (if buyer has mortgage financing) issued would require what kind of elapsed time frame by a title insurance company?

Thoughts?  Answers?

So I don't have a solid answer for you, but there was a similar post in the last few months I was looking for but couldn't find. 

Basically someone had purchased a TX tax deed property, and was past the 6 mo (non-homestead) redemption. They were running into the issue that the "standard" answer they got from title was that they wait the 2 years as kind of a standard approach to be sure that redemption rights are passed.

Now I'm not sure if this same strategy applies to TX tax sales, but there are some other threads with ideas you can look at. Search for "tax title insurance" and you'll get a few threads talking about what they provide. Basically they're kind of a middle of the road cost between normal title insurance and a quiet title action.

There are companies that will issue title insurance on a Tax Deed.

Tax Title Services is one company that does it.

This is cheaper and faster than a Quiet Title Action.

John

@John Underwood

Not necessarily so.

For one thing these services including the one you mentioned do NOT issue title insurance is all cases and exclude certain states.

Secondly on one that they would issue the costs was $4,500, while the Quiet title Action was $2,000, so they are not always the cheapest either.

I'll fully disclose that I don't buy at tax deed auctions and I'm a CA only investor.

There are other posts about this topic worth searching for on BP.

I've been on both sides of Tax Title Service. 

Some years ago I was introduced to the president/founder through a mutual friend and learned that he was formerly an underwriter at one of the major title companies that I will not mention. 

They add value by insuring when others will not, at a premium.

Nearly 10 years ago I intentionally let several vacant lots go to tax sale. It was a beautiful thing as I got see what others experience from Tax Title Service trying to make a buck by barring my potential future title claims. 

Their method was to bombard me daily with FedEx envelopes containing Quit Claim Deeds for me to sign. No carrot, no stick. Not even an offer to pay for the notary! This went on for several weeks, as I recall.

What did I do! I signed and returned two QCD's for the two vacant lots. 

Then I applied for and received the $125K in county tax surplus funds for my $1,200 investment.

Hi Kyle, Kyle here. I am from Texas and invest in quite a few tax sales. If the property was not homesteaded at the time of judgment you are correct, it is a six-month redemption, however title policy companies will avoid these like the plague for two years. A bank simply will not loan on these properties because nobody can get title insurance for them for atliest 2 years. Also I am assuming that you did your due diligence and there are no federal IRS tax liens, child-support liens, hospital liens. Those puppies do not drop off the tax sale.  

If you sell to a cash buyer and they don't require a title policy then you're all good, but that would be a slim chance. At this point you're pretty much stuck with renting the property out, holding it in inventory for 6 mos or going to the original owner, and giving them a few bucks to sign over the redemption rights to you. That's kind of a tricky situation. keep in mind that redemption period starts from the day The deed is actually filed With the county, sometimes it takes 4 to 6 weeks just to get the deed in your possession before you can even file it.

Also, in Texas they do have the right to redeem within six months, and if you over improve the property or do extensive  remodeling,  and they come back to redeem the property you could lose big bucks on a lot of the money that you put into the rehab. The Texas laws are A little vague but basically they say that if you have to make an improvement in order to protect the integrity of the house they have to pay you the whatever you paid at the auction plus whatever you had to do to make reasonable improvements to protect the integrity of the house plus a 25% penalty within 6 mos. what they mean by protecting the integrity of the house, if the windows are busted out and the roof is leaking, and the doors kicked in , you have the right to pay for the materials and labor in order to fix the house so it does not further deteriorate. Putting a new kitchen and granite countertops is probably not going to count. 

The reality of the situation is that people rarely ever redeem. I've personally never had somebody redeem on me, but it doesn't mean that I don't minimize my own personal risk by waiting out these redemption periods or going other routes. Tax sale  investing is a very cash intensive business.

If you don't have the stomach to wait two years to get title insurance and your goal is not to rent out long-term, there is the option recommended by Rick and John. Tax title Services. Just look them up. They do title curative services, and once they cure the title they will submit it to their own companies for title insurance. Basically they should be able to cure it within 2 to 6 months, but don't quote me on that, you need to call them. I've dealt with them a few years back and I was successful with their service.

 The other option is to hire an attorney and go through with  suit for quiet title .  Typically this is a longer process and costs more, maybe not necessarily in all circumstances . 

Hi Kyle, I just came across your post. You appear to have good understanding of tax sale. You mentioned about Federal IRS tax liens, child-support liens and hospital liens. I am just curious, how you search for these liens on a property before bidding? Thanks for your help.

Does the redemption period starts from the date the property was purchased ( date of tax sale) or from the date the deed was issued by the county?

A creative solution might be leasing to a tenant with an Option to Buy which they can exercise once the two year redemption period is up and/or consider seller financing (both with full disclosure and documentation of course ). 

@Tracy Z

I'm not sure that is a viable option to sell a property that the redeemer can re-establish their ownership in 2 years wiping out the option.  If I were the optionee, I would be p***ed, and could pursue legal action against the optioner for selling something they did not have clear title.

I would rent it to them and tell them that after the two year period of redemption that I MAY sell them the property; no option, no legal documentation and no future law suit.

@David Krulac   My thought was to go with the rental/lease and give them the option that could only be exercised after the 2 year year redemption period had expired and then possibly convert to seller financing all with full disclosure.  But documenting that with full disclosure could certainly get messy so understand your suggestion to only rent and then look at the other options.

@Tracy Z

Yes, you could be in legal trouble if you sold an option to redemption rights that you did not own or were unexpired. Best to either wait for the redemption to expire or better yet go out and purche the redemption rights yourself to clear the title.