California LA County Tax Auction Research
Glendora, CA · Member since 2018 · 49 posts · 16 votes
Hi BP Forums!
I am currently researching the California LA County Tax Auction. Does anyone have experience with this? I have several questions and any info would be helpful. See below questions.
Any books or websites I should pick up or look into?
How does the auction work?
What is the competition like?
What due diligence should I do before bidding?
What happens if you win?
What about this redemption period of 1 year after winning?
What happens if the original owner redeems a property in that 1 year? Do I get a return on my purchase at all? Do I get my money back at all?
What if someone still lives in the property?
How easy is it to evict someone from the property?
How easy is it to get title insurance after the year is up?
What if it's a multi family property? How are rents handled in that first year?
So many questions! Any info would be greatly appreciated!
Thanks BP!
@Monica Abeyta Tax deed auctions vary slightly county to county across California. The laws are the same across the state, but the rules of the auctions and how they are conducted are what vary. For example, some are in person whereas some are online. Some require the winning bidder to pay in full immediately after the auction, and others give you time after the auction to make payment. You get the idea.
There's really no book you can read to cover all this. The best thing you can read is EVERYTHING posted on the website of the county conducting the auction. They typically post quite a bit of information, including things like: is preregistration of bidders required, how the auction works, when is payment expected if you win, what forms of payment are accepted, what liens are discharged by the tax sale and what liens are not discharged, when will you get title to the property, etc.
Expect there to be a lot of competition. (There has been at every tax deed auction I've been to.)
As for due diligence, you're somewhat limited in what you can do since you usually won't have access to the property (so obviously you can't do an inspection). However, if I'm going to bid on a property, a few of the things I do is research the neighborhood, drive by the house to look at the condition (and make sure there's still a house there - I've actually had some where it was now a vacant lot), check comps so I can get an idea of what my max bid should be, check rent rates in the area so I can get an idea of what I'd be able to rent the house out for, and check any code violations on the house since you'll still be responsible for those.
If you win, you have to pay for the property. As I previously mentioned, some auctions require you to pay in full before you even leave the auction and others give you time after the sale to pay. Some accept cash, some don't. Almost all won't accept personal checks. Almost all will accept cashier's checks. Definitely know when and how payment is expected before bidding.
There is no redemption period after the auction, nor can the previous owner redeem the property in the year after you win the auction. In California, the right of redemption generally ceases at the close of business on the last business day PRIOR to the sale.
After the sale, a party may only challenge the validity of the sale (i.e. claim they weren't properly notified of the sale). If they were successful in their challenge and the sale were to be rescinded, you'd get your money back plus interest. However, you would not be reimbursed for other costs you may have incurred. For example, if you already remodeled the property or paid for insurance on the property, you would not be reimbursed for those costs.
If someone lives in the property that's something you have to deal with. You may have a new tenant who didn't do anything wrong and wants to continue living there, or it may be the previous owner who is going to try and remain in the property as long as possible without paying and you're going to have to go through the court process to remove that person. That's a risk you take with buying these types of properties.
If there is a tenant in the property, you can just introduce yourself as the new owner, ask them if they had a lease with the previous owner (ask to see it if they do), and decide what to do based on what you learn from your conversation with them. Doesn't matter if it's a single family or multi family property. The most important thing is to make sure they know not to send rent payments to the previous owner or property management company, and to start sending them to you.
I can answer some of your questions:
Any books or websites I should pick up or look into? BP is a great resourse. Read through the forums
How does the auction work? Not sure for your state
What is the competition like? My state is very competitve and Institutional investors come with Millions to invest so I look for properties under 100K and don't waste my time on higher end properties.
What due diligence should I do before bidding? Look at them online but definately drive by and put your eyes on anything you may bid on. Houses can be burnt down since the online pictures were made.
What happens if you win? If you get a lien you have to wait for the redemption period to expire before you can get a deed.
What about this redemption period of 1 year after winning?You have to wait until this expires.
What happens if the original owner redeems a property in that 1 year? Do I get a return on my purchase at all? Do I get my money back at all? You get your money back plus interest.
What if someone still lives in the property? That is great, it means the property is habitable. You can often make them your new tenant with minimal rehab costs after you get the deed.
How easy is it to evict someone from the property? May vary for your area, simple in my location.
How easy is it to get title insurance after the year is up? You need to clear the title via a Quiet Title action and you will need to hire an attorney. You can also get Quit Claim deeds from previous owners and a few other things and clear the title. I have done this then sold with a General Warranty Deed. I keep most of my properties as rentals so I don't bother clearing the titles or getting title insurance.
What if it's a multi family property? How are rents handled in that first year? You can't collect rent until you have the deed. Then it is like any other rental property.
@John Underwood Thanks for your responses John! Super appreciate them!
@Monica Abeyta Tax deed auctions vary slightly county to county across California. The laws are the same across the state, but the rules of the auctions and how they are conducted are what vary. For example, some are in person whereas some are online. Some require the winning bidder to pay in full immediately after the auction, and others give you time after the auction to make payment. You get the idea.
There's really no book you can read to cover all this. The best thing you can read is EVERYTHING posted on the website of the county conducting the auction. They typically post quite a bit of information, including things like: is preregistration of bidders required, how the auction works, when is payment expected if you win, what forms of payment are accepted, what liens are discharged by the tax sale and what liens are not discharged, when will you get title to the property, etc.
Expect there to be a lot of competition. (There has been at every tax deed auction I've been to.)
As for due diligence, you're somewhat limited in what you can do since you usually won't have access to the property (so obviously you can't do an inspection). However, if I'm going to bid on a property, a few of the things I do is research the neighborhood, drive by the house to look at the condition (and make sure there's still a house there - I've actually had some where it was now a vacant lot), check comps so I can get an idea of what my max bid should be, check rent rates in the area so I can get an idea of what I'd be able to rent the house out for, and check any code violations on the house since you'll still be responsible for those.
If you win, you have to pay for the property. As I previously mentioned, some auctions require you to pay in full before you even leave the auction and others give you time after the sale to pay. Some accept cash, some don't. Almost all won't accept personal checks. Almost all will accept cashier's checks. Definitely know when and how payment is expected before bidding.
There is no redemption period after the auction, nor can the previous owner redeem the property in the year after you win the auction. In California, the right of redemption generally ceases at the close of business on the last business day PRIOR to the sale.
After the sale, a party may only challenge the validity of the sale (i.e. claim they weren't properly notified of the sale). If they were successful in their challenge and the sale were to be rescinded, you'd get your money back plus interest. However, you would not be reimbursed for other costs you may have incurred. For example, if you already remodeled the property or paid for insurance on the property, you would not be reimbursed for those costs.
If someone lives in the property that's something you have to deal with. You may have a new tenant who didn't do anything wrong and wants to continue living there, or it may be the previous owner who is going to try and remain in the property as long as possible without paying and you're going to have to go through the court process to remove that person. That's a risk you take with buying these types of properties.
If there is a tenant in the property, you can just introduce yourself as the new owner, ask them if they had a lease with the previous owner (ask to see it if they do), and decide what to do based on what you learn from your conversation with them. Doesn't matter if it's a single family or multi family property. The most important thing is to make sure they know not to send rent payments to the previous owner or property management company, and to start sending them to you.
Thats news to me also: No 1 year redemption period in California.. Good to know.
Is there a way to find out if they were properly notified so you can rule that out?
Thanks