Title search before buying tax lien?

Question

For tax lien investors, do you perform a title search as part of your due diligence before bidding on a property at auction? If so, how far back do you go? If not, has not doing so ever come back to bite you? Thanks in advance for the help!

Bruce Lynn · Answer

Yes.....but I am selective on what I buy. As @John Underwood states above, I may start out with 1000 properties, but I am narrowing that down by auction day. Have to decide where I think I will be successful, what the spreads are, what will get paid off, what will get pulled, ease of turn, and a million other decisions. So not pulling title on 1000s, but maybe 10.

It's probably less of a problem of loosing money, vs a headache thing.

Bruce Lynn · Answer

@Corey H.   I say you are not always all good, just because in theory the tax foreclosure wipes out the lien.  What will happen probably if it is a big lien from a deep pocketed lien holder is that they will fight you.  They will contest the sale.  They will claim they were not properly notified.  You may or may not win, but it will cost you money and headaches.   You think Wells Fargo is going to go away quietly if you buy a $150,000 property with a $140,000 lien for $1000.

Ned Carey · Answer

@Corey H. first remember tax sale laws vary tremendously by state. So what I am about to say may not be accurate 100% of the time.

Generally a tax lien foreclosure wipes out anything attached to the property and clears the title. The major exception is an IRS lien but there are ways to deal with those. Why would I care if there are liens, judgements or mortgages against the property if they are removed through the tax foreclosure process?

That said like @Bruce Lynn I will occasionally look more deeply at a particular property. i can't even give you a reason why. It is just instinct. It might be the name of the owner, how long it has been owned, or maybe the size of the lien.

John Underwood · Answer

I do not. I cant do this for 1000 properties. The deed if you get it wipes out most liens if the county typically does their job properly.

Nick P. · Answer

@Corey H.  -- Any sort of issues w/ inheritances & title w/ a bunch of people will slightly increase your chances of taking the property.  Those 8 kids may not care, may not get along etc.  In Colorado they can come back after you get the deed and get the property for 5 or 7 years, I can't remember.  Filing suit for quiet title will cure these issues.

I know this is probably a lawyer/state specific question but I'm looking at a sizable lien right now.  It previously had municipal liens for the sewer that was installed.  The original developer filed chap 11.  They sold to another guy who was arrested for fraud (really interesting story following/learning about this property).  Now a private equity firm owns the property (the received it via public trustee deed).  I'd assume those muni liens are long gone, but prob need to check w/ recorder.  Do IRS liens follow a property from owner to owner? I'd assume both of these would be gone w. the trustee deed.  This county doesn't have online records :(

Nathan Woods · Answer

Corey H. im glad your getting your feet wet at the auction, I have also recently acquired a property this way but mine was collectors deed, I did a few consultations with different lawyers from different states( I was originally looking at FL) and I was advised to be careful with deceased owners because if heirs are not notified its a good chance it could void the sale.

Corey H. · Answer

This is a very intellectual conversation... I love it! Thanks for the clarification @Ned Carey. I'm doing tax lien investing. The reason I said what I said is because I bought a tax lien on a property a few months ago where the owners were deceased and the property had not yet been probated. The owners have like 8 children and I've read where there have been cases where, if the municipality doesn't properly notify the owners that the property is going up for tax sale, the owners may be able to challenge the underlying legality of the sale based upon improper notice. In this case it would be the heirs that could challenge. In my state, the law requires that owners be given 10 days written notice of the sale. I'm eager to see how it plays out (hopefully in my favor!)... it was my first purchase. I'm looking to pour alot more into tax liens but I'm trying to really get a good grasp on all of the in's and out's before I do.

Ned Carey · Answer

@Corey H.

You need to understand the difference between a tax lien and a tax Deed. If someone purchases a tax lien the municipality doesn't notify everyone. That is what the foreclosure is for. The foreclosure is paid for and done by the tax lien holder, (or their attorney)

If a tax Deed is sold then the municipality has done the foreclosure process themselves. The problem is no one knows if they did it properly, so it order to get insurable title you must do a "Quiet Title" action

Here in MD we don't get many challenges as @Bruce Lynn described. We get challenges by small time knuckleheads that think they can somehow save their property. We rarely lose a challenge but it can drag things out and be a general pain in the butt.

Corey H. · Answer

@Nick P. Hi Nick... thanks for the info. In GA the water liens follow the property, not the owner. So the attorneys look for them during title search and require that they be paid off at closing.

I'm not sure how Trustee Deeds work in your state but from  what I've seen in the quiet title cases that I've studied, the IRS will typically release their lien on the property and allow the quiet title to move forward while reserving their right to lien upon the remainder of the taxpayer's property. The IRS lien is on all of the property of the taxpayer.

Corey H. · Answer

Hmmm.... so you got them though... that's interesting @Nathan Woods

Now that you say that, I think I may go try again :)

Title search before buying tax lien?

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