Tax Sales, redemptions & Wholesaling

19 Replies

New Member here, and enjoying what I'm reading on the forums !

I've been checking out properties where the owner is behind on their property taxes and would be interested to understand and clarify a few things:

1. If the properties are named on the counties forthcoming Tax Sales notices, would the owners be within their rights to sell the properties ahead of the sale to clear the debt?

2. If so, who pays the taxes, or is this negotiable (maybe it's also dependent on the county)? Could I pay the taxes off and buy the property (as a package deal), or does the lien need to be cleared by themselves?

3. How does the redemption period situation work? If I pay the taxes as part of the negotiation, and then wholesale it to an investor, where does that leave the investor if the original owner decides to redeem the property within the redemption period?

Thanks

The owners can sell before the sale, but that clears no debt, unless the buyer pays taxes, liens, mortgages, other debts.

Buyer can pay the taxes. The County doesn't mind-as long as they get their money.

This varies, from state to state. Some states have no redemption period. Some allow redemption up to one year. If you speak to the people in your county office, they should advise you on redemption period, in your state. 

So to confirm: If the state has a redemption period of (say) 90 days, and I've wholesaled the property to an investor - if the original owner wants to redeem the property within the 90 days, where would that leave:

a. The wholesaler

b. The investor who now owns the property?

Thanks 

(I'm lacking in knowledge regarding redemption periods and how they affect all parties involved in transactions from the time of sale to the end of the redemption period).

@Steve G.   Each state has different rules regarding the redemption periods. Most states mandate a sale to the prior owner if they wish to redeem the property. Based on your questions, I think you are only meaning properties obtained by tax deed. In which case, I can tell you what happens in Texas, @Joseph Ball  could probably give you the details about Florida. 

In Texas, the redemption period is determined when the suit is filed. This means that the prior owner will have either 180 days or two years depending on the type of property that is being foreclosed on. The redemption period begins on the date of actual tax sale, not the suit filed date. 

If a property is sold at the tax auction, the buyer has immediate right to the property. If the prior owner wishes to redeem the property, the prior owner must provide an itemized list of all cost associated with the purchase and maintaining of the property. At which point, if the redemption occurs in the first year, the buyer receives all necessary costs plus 25%. In the second the buyer gets all necessary costs plus 50%.

If the buyer wholesales the property to an investor, the investor is entitled to the redemption fees. However (this is big), if the prior owner cannot locate the buyer/new owner; the prior owner may pay all fees to the Tax Assessor Collector. The Tax Assessor will file an absentee Quit Claim Deed. They will then place the monies in an escrow account, and wait for the buyer to claim it. 

This is one of many pitfalls in buying tax deeds at auction in Texas. It is also the largest reason why title companies almost refuse to provide title insurance on these properties. So if you plan on whole selling these types of properties, be careful. 

@Richard D. just what I was looking for thanks so much!

Lol!

How do I get the link to show the full link with the @ before the name ?

@Richard D.  

In Texas, statutorily, the redemption period begins from the date the deed is filed, not the date of the sale, see Tax Code 34.21 (a) and 34.21 (e)(1).

This has also been my personal experience when obtaining title insurance. The title company will use the date the deed was filed for record.

@Steve G.  Where are you looking to buy or transact?

@Josh James 34.01 (m) states that the conducting officer shall prepare a deed at the sale. The officer is also charged with filing the deed as soon as reasonably possible. In counties that sell only a few properties the deeds can be made available the same day and filed. 

@Josh James (don't think that method of linking is right either - sorry Josh)

I'm looking into virtual/remote wholesaling in growth area's. At this stage (early days), my interests are Tennessee & Texas - but I'm certainly open to looking at other locations with high inventory & high demand. 

So from Richard's post above, am I to understand that if an investor purchases a property with a 2 year redemption period, and the original owner applies to redeem the property within the 2nd year, all costs are returned to the investor (rehab costs, taxes, insurances etc??), PLUS 50% of theses costs - to clear the debt and redeem?

So what happens if the investor was a fix n' flipper, and the property is now owned by a 3rd or 4th new owner during that period? Do the same rules apply to the current owner provided it's within the redemption period?

@Steve G the two year period only applies to homestead, agriculture use, and mineral rights. All other properties in Texas receive 180 day redemption periods. Be careful in what you do to a property during a redemption period. 

Making necessary repairs to bring a property to code is acceptable.  If you do a complete rehab with upgrades, you could lose a lot of money. The prior owner will only be responsible for paying for necessary repairs plus 25%. 

My office has had the unfortunate task of filing a redemption because the buyer didn't follow the laws of redemption.  The buyer lost over $50,000 in rehab cost that they performed. The buyer tried to file a lawsuit, and they lost.

The previous owner who loses the property has the right to redeem the property regardless of how many times a property changes hands. If the new owner refuses, the tax assessors office will enforce the redemption. 

If forced redemption occurs, the tax assessor will only ensure all taxes are paid in full plus the redemption fee, only.

No rehab and no insurance.

@Richard D.  Thanks, thats  a question I've been looking to have answered for a while now.

When you say no insurance - are you referring to Title Insurance?

So, if a property is wholesaled to a local investor,  would I expect the investor to know about the redemption period & the restrictions during the redemption period?

Is this something which is discussed during negotiations with either the vendor or the investor? 

Does this affect pricing or encourage investors to buy in lower priced area's due to the possibility of redemption?

@Steve G.  You will need to disclose that the property is eligible for redemption in your sales agreement. Failure to do so will open you up to a whole lot of legal issues. It is best practice to do so even if you believe the redemption period has expired. 

The majority (like 99.99999999999%) of title companies will not provide title insurance on a tax foreclosed property until the title has been quieted. The time frame and requirements will vary by state and title company. 

And when I say no insurance, if a Tax Assessor does a forced redemption, it's no insurance of any kind. This is the ugly side of property tax foreclosures in Texas, you could lose the home to redemption and not even know until after the fact. 

Originally posted by @Steve G.:

So to confirm: If the state has a redemption period of (say) 90 days, and I've wholesaled the property to an investor - if the original owner wants to redeem the property within the 90 days, where would that leave:

a. The wholesaler

b. The investor who now owns the property?

Thanks 

(I'm lacking in knowledge regarding redemption periods and how they affect all parties involved in transactions from the time of sale to the end of the redemption period).

Presuming you buy the property and go to settlement before the tax sale there is no "right of redemption" becuase the taxes and all fees are paid at settlement. Because the taxes are paid at settlement there is nothing to redeem. 

If you buy the property after a tax deed sale, if there is a right to redeem, you are in a race to settle the property before the right to redeem ends. (not all states have a right to redeem after the sale). 

If you buy a tax lien, then you have a race to go to settlement before any tax foreclosure is final.

In both the case of the tax lien or tax deed, you can always pay the taxes ahead of settlement, but then you are at risk if the owner doesn't sell to you.

Regarding who pays the taxes it can be either party depending on what is negotiated.  This should be clear in your contract. It is adjusted as of the day of settlement according to who pays in the contract.

As already  written, law vary quite a bit from state to state. What I have written above is a generalization and would apply in most situations. However specific state laws could modify the the process above.

@Ned Carey  Thanks for the explanation, itemizing those scenarios - liens, deeds and pre-tax sales - it looks pretty straightforward. In practice may be a little different first time around, but I get the basic idea which is what I was hoping for.

As I'll be out of state, do you have any advice regarding doing due diligence on property taxes, "virtually" (web based DD) for (for example), Tennessee, Texas or Illinois?

@Richard D. You said:

"You will need to disclose that the property is eligible for redemption in your sales agreement. Failure to do so will open you up to a whole lot of legal issues. It is best practice to do so even if you believe the redemption period has expired."

Would it be sufficient to have this disclosure in the Assignment Contract as opposed to the actual Purchase & Sales contract to my investor? 

Thanks

@Steve G.  Ask a real estate attorney in your area. In Texas, taxing units place it in their sales agreement, even if the redemption period is over. Ethical best practice would be to disclose it. Besides, a title company will find it, and notify the necessary parties involved, and may even decline title insurance if it's not disclosed.

@Richard D.  Thanks for the heads up, I'll certainly do that!

@Steve G.@Ned Carey , @Richard D.   So, did we end up agreeing that the redemption period is after a tax sale.  And, that if we wholesale it and paid off all taxes/judgments/liens/etc before the tax sale actually occurs, then there's no redemption period?  I just need this clarified...this is where I got a little confused when reading through this thread.  Thanks!

What happen when you have people leaving in the property that you just bought at the TAX SALE in Texas?.

If is the homestead leaving in there or is a renter

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