Tax auction sales. WHATS THE CATCH?

Question

Jeff B. · Answer

For the State in which you wish to buy at a Tax Auction,  verify the Right of Redemption of the owner.  There are several pitfalls in this area including the owner's challenging Due Process and proper notice which will negate the sale even if you're the winning bid.

Additionally, you may need to leave the property empty and w/o improvements for several years awaiting the  Right of Redemption period to lapse and that can kill all rehab or renting intentions.

Josh Carr · Answer

@Justin Turner Hi Justin I think you are buying in Texas and they have three different sales.  You could attend the auction, which takes place the first Tuesday of every month and then see what the reality is for prices and how it works.  You don't have to jump in right away but this will give you some guidelines.  Things can get bid up and bidding wars occur.  You have to be able to set your ceiling and walk away if you don't win and stop at your ceiling.  It can be hard because you want to win and that's when the bidding wars begin.  Every auction is different and you may not get any of the properties you have set up for your bidding due to deep pockets or payment of taxes by the property owner prior to.  It is always tricky as the owner can usually pay taxes up to 5:00 pm the night before the sale.  If that happens then your property choices may not even be available at the time of sale.  It does take due diligence and there is a redemption  period of 6 months in Texas even if you are the winning bidder or up to 2 years if there is a homestead exemption.  You can be successful if you work things right and don't give up if the first time doesn't give you a home run.  People here on BP will help you too.  Let us know how it goes for you the first time.  I am always willing to learn.  Thanks!

Chinmay J. · Answer

@Justin Turner - If you are asking these questions you clearly don't qualify to buy house at auction just yet. Auction buying is for very experienced investors. One of the biggest thing about auction buying is that you can't legally step your foot in the property until you have bought the property. You are buying pretty much blind. Also, in VA a lot of trustees require you to deposit 10% of the contract amount right off the bat with a certified check. You have to close within a month or so.  This itself should deter any newbie investor from getting into auction sale - not to mention possible issues with title.

Anastasia Jordan · Answer

Rules vary based on what state you are investing in.

You can't sell the property for its full value until you have a clear title.  To get a clear title you have to file a quiet title action in court after the redemption period is up.

The original owner does have a time period to come back and redeem the property. Some do, some don't. Some states allow the purchaser to claim additional costs (insurance, interest, restoration improvements).

You may not know the extent of the damage the property has.