Buying a house with delinquent taxes from the owner

33 Replies

Hey Guys,

I was looking at the tax records in my area, Houston Texas, and I came across a property in an area that is under going gentrification. The current owner doesn't live there but owes about 8k in taxes from 2015, 2016 and 2017. First off, how do would I determine if the county has already taken over the property and plan to auction it off. I can't find it an any pre-foreclosure list.  Second, what do should I do before approaching the homeowner to ensure I can legally acquire the property. Third, if I approached the home owner to buy the house and she accepted what would I need to do to acquire the house.  As you probably guessed, I have never dealt with tax liens and have minimal RE investing experience. Let me know what you guys think.

Tax info: 

https://www.hctax.net/Property/TaxStatement?account=HWCFQ4esXQ4X7yMRkc4QmpKDpy/BqLnUdR4s6dDwm8s=

Thanks,

Gavin

@Gavin Snyder ,

Who is the listed legal owner? That will tell you if county has taken over property. It won't tell you if they are in the process of taking it over. You can contact your county Delinquent Tax office to find this out.

If you want to approach owner you should do a title search and make sure there aren't other liens or mortgages against the property.

If the property has a clean title minus the back taxes then you could offer the owner a few hundred for her time to sign the property over to you. Do not say you want to buy it. That will trigger a much larger price than the $300 for her time.  Only after you are the owner should you go and pay the back taxes.

You might want to talk to county, then the owner before spending the money on a title search to make sure there are no issues like owner to wanting to sign or sell.

Thanks for the reply John, I will start calling around and trying to figure it out. 

I called the county and they said the property is under a law suit and with a law firm now. I'm guessing at this point it is too late to take any action? 

Even if suit has been filed, you can still buy and pay off the taxes prior to the tax sale and maybe even after the tax sale.  At minimum in Texas there is a 180 day right of redemption.   The difference is at this point there could be more penalties and fees, but usually they are minor in compared with the taxes due.   So find out from the county the total amount due and figure that in with your bid.  Make sure that amount includes all taxing entities.   Sometimes the county handles everything, but in some places different taxing entities collect their own.  You could have five different taxes or so in Harris county....county, cit, school, hospital, and maybe community college or others.

Always close at a title company so they will help you collect and pay off the taxes and any other liens.

This is a perfect opportunity for you.  Don't be scared off.  I would say this is a very normal situation.

Thanks for the response Bruce. Have you guys done this type of thing yourself? Any advice on how to best approach the home owner? Also what are some of the issues you could foresee with this? I ordered a title search today on the property, so I should have a better idea on friday if there are any hidden issues. 

Thanks.

@Gavin Snyder , Check with the clerk of court and get a copy of the law suit or check with the attorney. This may very well be a different issue than back taxes. The county usually just actions off a tax lien they don't file suit.

Also what is the house worth? The attorney must think he can get some money out of the house or owner.

Don't give up just yet. Get to the bottom of what is going on and then make an informed decision. Problems like these that scare of the average person is where you can find opportunity.

 Let the attorney know there is 8k in back taxes owed. He might end up dropping his suit if there is no money in it for him or the person that hired him. 

I just purchased a house that the owners owed several years of back taxes. The title company will find all liens on the property in order to give title insurance. Realistically, the owner would have to be pretty stupid to sell you the property for a few hundred dollars. What I would offer would depend on the value. 

I made contact with an owner through direct mail, but you may want to try to move faster than that. I paid $34k for a place worth $55k or so as is. A problem is these kinds of owners frequently procrastinate and won't be interested in selling until the last minute. 

Also, in some TX counties disabled people don't have to pay their property taxes until they die or sell.

@John Underwood I spoke with the firm and it sounded like this was part of the normal process for delinquent taxes. The name of the firm is Linebarger, and i think tax sales is a main part of their business. When i talked to the firm they said as long as the property tax is paid off before the sale date, it won't go to auction. Thanks for the encouragement.

@Eric James I was planning to track down the current owner. The tax site gives their address, which is different than the property I am interested. You are probably right, I doubt they will let it go for a few hundred bucks but maybe I can motivate them with a few thousand in hand. The appraised value of the house is just under 100k and they haven't paid taxes or lived in the house for a couple years. 

@Gavin Snyder You would be surprised how many times I have gotten some one to sign over a delinquent tax house for $200. If they are multiple years behind they are likely not going to come up with the money and would rather get something rather than nothing.

I have also made loans at high interest rates to people who didn't want to loose their house. I had them Quit Claim the property to my LLC and then sold it back to them with a land contract or 24 months. I have loans for roughly 4k where they signed over the property. I paid off the back taxes and they are depositing into my account their payment each month. If they miss 2 payments the contract says it is void and any money they have paid is forfeit and I already have the house deeded in my LLC's name. More than one way to approach this.

1st see find them, talk (mainly listen) to see what the story is and if they even want to redeem the property. They may have already walked away from the property. In this case only offer to pay them for their time to sign some paperwork.

I create my own Quit Claim deed and have them meet me at a bank where I can get my deed notarized.

@John Underwood That sounds awesome. I also thought about creating some kind of loan or rental agreement with the homeowner but didn't really look into the details of it yet. This will definitely give me something to think about. What is a a "Quit Claim Deed"?

@Gavin Snyder . Sounds like you may have found a Gem among the rubble. one point of Info: In Texas most Title Companies will not recognize a "Quit Claim" Deed, except on occasion from one relative to another. 

Originally posted by @Gavin Snyder :

@John Underwood That sounds awesome. I also thought about creating some kind of loan or rental agreement with the homeowner but didn't really look into the details of it yet. This will definitely give me something to think about. What is a a "Quit Claim Deed"?

  A Quit Claim deed is a legal deed that does not guarantee any warranty. The owner or person signing it is saying any claim they have they are giving to you. You should have a title search done to confirm they are 100% owner with no liens that you are unaware and willing to take care of. I can give you a Quit Claim deed to the Empire State Building but if I have no ownership you aren't getting anything. But if I was sold owner of the Empire State Building I just transferred my ownership to you.

@John Underwood

While a quit claim is a valid deed, title companies in Texas are reluctant to provide title insurance except with administrative transfers such as husband/wife in divorce or owner to an LLC

Therefore, as @Jim Cummings stated a quit claim deed in Texas an acceptable form of transfer in Texas

Originally posted by @Greg H.:

@John Underwood

While a quit claim is a valid deed, title companies in Texas are reluctant to provide title insurance except with administrative transfers such as husband/wife in divorce or owner to an LLC

I am unfamiliar with laws in Texas. If this is the case after a title search just get them to sign a general or limited warranty deed. I have created general warranty deeds for my own purchases when I need to act quickly, but I would recommend you find an attorney if you have never done it before. I have studied deeds talked to paralegals and even had an attorney bless a Quit Claim deed I use. It isn't rocket science but the results of doing it wrong could ruin your day. Check your local laws and if unsure use an attorney.

Originally posted by @Greg H.:

@John Underwood

While a quit claim is a valid deed, title companies in Texas are reluctant to provide title insurance except with administrative transfers such as husband/wife in divorce or owner to an LLC

Therefore, as @Jim Cummings stated a quit claim deed in Texas an acceptable form of transfer in Texas

 Also if I am paying cash and I have checked the title or had someone else do it then I am not bothering with title insurance. Especially if title is confirmed clean and I am only paying $200 for someone to sign over a property. I can do this start to finish in an afternoon when I have a fish on the line I want to reel it in right away.

@John Underwood

This is a Texas thing.  I have done my share of deeds myself over 25+ years and I get it.....I have bought my share of properties without title insurance. 

However,  let's say I do buy the deal of a lifetime for a few dollars and find a buyer and I am looking at a $50k profit. But guess what, the title company will not insure title on the sale therefore my great deal is not marketable 

All states do deeds differently 

Dont know why not trying the cash deed...once you have agreement with the owner usually they dont know or care if it is a quit claim deed or whatsoever!! Thats what I see most of the time.

You are not doing something wrong you are trying to protect yourself and to avoid any title problems in the future.

Basically you are buying the property that simple.

I'd call the county clerk and ask about which site to use to search the records...that way you can do your own search not saying professionally but at least sometime you can find some liens on any property interested in like labor liens, child support, abstract judgments...etc could save you some time and $$$ by filtering your targeted properties before doing the title search through title abstractor.

Some times I offer the former owners some time to leave like few weeks so I dont need to pay them alot and get them sign a short term lease with zero rent with waving their rights to fight any eviction and giving me the right to get the writ of possession right a way once the short term lease ends without giving them any eviction notice.

Hope that helps.

Good luck to all

Originally posted by @Greg H.:

@John Underwood

If I do want to sell in the future I can find a cash investor. So title insurance or not isn't going to stop me from making a huge return.

Title insurance is just to protect you from a defect in a title that was missed.

If I am paying 100k for a house then I will more than likely get it.

$200 for a house I won't bother.

I also do this in my self directed ROTH IRA with checkbook control. Then all the rent I get for 20 years has no taxes owed. Also If I sell my $200 house for 100k one day in the distant future. I owe no taxes on this either.

Originally posted by @John Underwood :
Originally posted by @Greg H.:

@John Underwood

If I do want to sell in the future I can find a cash investor. So title insurance or not isn't going to stop me from making a huge return.

Title insurance is just to protect you from a defect in a title that was missed.

If I am paying 100k for a house then I will more than likely get it.

$200 for a house I won't bother.

I also do this in my self directed ROTH IRA with checkbook control. Then all the rent I get for 20 years has no taxes owed. Also If I sell my $200 house for 100k one day in the distant future. I owe no taxes on this either.

 Alright, I have tried to massage my way through this and politely explain the difficulty with Quit Claim deeds in Texas which you obviously know nothing about. First , a seller in 90+% of cases has no idea why type of deed they are executing...so why create a problem?

Eventually, someone is going to want to sell to an end buyer getting a loan and guess what ....there is going to be an issue.  You do realize anyone getting a loan will have to obtain title insurance I assume. So therefore, why would anyone suggest a quit claim deed to be used in Texas ?  The correct answer is they would not when a General or Special would suffice. FYI- limited is not used in Texas. Deed Without Warranty is and in some instances creates issues as well

I try to avoid giving what could be state specific information here on BP as often it is just that....specific to that state

Back taxes are no big deal, if they are redeemable.  Usually you can call and figure that out.  Alternatively, if you are getting title insurance, which you should, the taxes will be paid out of the proceeds at closing.  If you cut some deal where the back taxes will not be paid by the seller, then bring that amount to closing.  Probably the title company will pay it for ou, or make sure you pay the taxes ASAP.  

Originally posted by @Greg H.:
Originally posted by @John Underwood:
Originally posted by @Greg H.:

@John Underwood

You are just not getting it. I referenced what I do, then I said do a title search, if clean then use a General Warranty deed and use and attorney if there is any doubt during any step. This is not state specific. This applies to all states. You are not not seeing the forest for all the trees. I said I do not know Texas laws consult am attorney for you specific laws. Look at the big picture and quit trying to twist things around. Teachable moment for you. I hope you finally get it if not....☹

Originally posted by @John Underwood :
Originally posted by @Greg H.:

@John Underwood

If I do want to sell in the future I can find a cash investor. So title insurance or not isn't going to stop me from making a huge return.

Title insurance is just to protect you from a defect in a title that was missed.

I also do this in my self directed ROTH IRA with checkbook control. Then all the rent I get for 20 years has no taxes owed. Also If I sell my $200 house for 100k one day in the distant future. I owe no taxes on this either.

Great!  I love teachable moments. You failed to get our original point that using a Quit Claim in Texas CREATED a title issue.  So when you sold that great deal way into the future, that tax free $100k might be worthless with the title issue YOU created unnecessarily at purchase 

@Greg H.

I'll say this again as you seem to keep missing it

"I am unfamiliar with laws in Texas. If this is the case after a title search just get them to sign a general or limited warranty deed. I have created general warranty deeds for my own purchases when I need to act quickly, but I would recommend you find an attorney if you have never done it before."

Problem solved.

I bow to your superior intellect of Texas Quit Claim laws.

@Greg H. Its my experience that just because you are Quit Claiming, etc. then you are not creating a lifetime of title issues (while I do agree Quit Claims are frowned...). Obviously, clear/clean title itself needs to be understood for the property in the begining. Title companies use both Texas Tax Code provisions and case law to support their positions on title insurance underwriting. But homestead/non-homestead is an important distinction, also if agricultural use or not....all factoring into a homeowner's right of redemption. Additionally, the validity of the tax suit (in @Gavin Snyder 's case, Linebarger) can be challenged for a time frame of 2x the right of redemption. 

All said, the most conservative of title companies usually will grant you title insurance at 4 yrs of your ownership as statute of limitations but others can/will be more aggressive depending case-by- case given the above variables. So the only way to have a lifetime of unmarketable title as Greg puts it would be if the whole of the property itself was not deeded over to you. Get on the Harris county clerk and you'll find plenty of quit claims that legally convey ownership...its just how you go about it.

Just my experience. I'm no attorney.

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