Posted almost 9 years ago

The Basics of Buying Tax Liens in Texas

As the old saying goes, you get rich by buying low and selling high.  A popular way to purchase real estate property at significant discounts is through Tax Lien sales.

WHAT IS A TAX LIEN

In most states a county will issue a tax lien on a person’s property that is late on paying real property taxes. Certain states allow the tax lien to become a first lien on the property, which is then turned around and sold at auction as a tax lien certificate. 

TEXAS TAX DEED AUCTION PROCESS

Texas does not have tax lien certificate sale, rather, they hold tax foreclosure sales (also called tax deed sales) on the first Tuesday of every month at the county.  Times vary and it’s recommended that the investor contact the County Clerk’s office to find out the time. 

When attending the tax lien sale, bring an acceptable form of payment, such as cash or cashier’s check, and then bid on tax lien properties. If the investor presents a winning bid, then he or she will pay the county, and the county will then issue a Sheriff’s Deed for the property purchased.  Delinquent tax property deeds are sold to the highest bidder. 

BIDDING PROCEDURE & COSTS

According to Texas Tax Code, “the sale is to the highest bidder that is willing to tender an amount that is less than the lesser of the market value of the property as specified in the warrant or the total amount of taxes, penalties, interest, costs, and other claims for which the warrant was issued”. (Sec. 34.01, Sec. 34.02).  The cost requirements are described as part of the minimum bid requirement includes the costs of the sale, including advertising costs, and any related court costs.  The statutes specified no other costs.

REDEMPTION PERIOD

Texas offers tax deeds with a 6 month right of redemption on non-homestead & nonagricultural real estate and 2 years for homestead and agricultural real estate. However, after a property is sold at a tax deed sale, the owner still gets a 6-month redemption period to buy back the property before you can obtain clear title.  If the original property owner comes up with the money before the time is up then the investor does not get the property.  However the investor does receive all investment back plus 25%!  The penalty fee is the same regardless of how much time has passed since the auction, so the investor can earn a 25 percent profit in two days or two months.  This means redemption can still be very lucrative for the investor, even if they don’t get to keep the property.

RISKS OF TAX LIENS

Like all auctions, there is a risk to purchasing property without prior title or bankruptcy searches or buying sight unseen.  For example, creditors and the IRS can take priority over tax lien holders in cases where the original owner of the property declares bankruptcy.   In addition, many people purchase properties sight unseen, going just on the description posted prior to auction. Without actual inspections and surveys, these deeds can be terrible investments as investors have no idea whether they're buying a three-bedroom house or a plot of dirt.  Physical inspections take time, energy, and money, and often limit tax lien purchaser’s ability to properties within a small area.

SUMMARY

Tax deeds can be a very lucrative strategy for buying, holding, and selling real estate property as an investor is able to purchase properties at a significant discount.  One of the main reasons why the strategy is attractive is due to the redemption period reimbursement rate of 25%, so even if the owner buys back the property, the investor has made a guaranteed positive return on investment.  Understanding the processes of the auction and researching the properties prior to the sale will help ensure profitable transactions.  


Comments (9)

  1. I would like to buy property that is sitting empty by paying the back taxes, can I keep the property?  Not sell it at an auciton. 


  2. I know this is a bit dated, but I'll ask this anyway.  Are there any good resources for doing research on properties to ensure they have no other liens or attachments before buying the tax deed?


  3. One thing though, having a tax lien on your property (home) is rough. But there is a way you can keep that from happening to you. Make sure to get in touch with the people and set up a plan to just pay whatever you can. Anything will help. Or you can get a property tax loan. For more info on property tax loans check http://www.propertytaxloansfortexas.com


  4. Hi, My name is Teresa I live in a small town in Texas and I would like to know if by any chance a property could be purchased if the owners have not paid taxes since the year 2002. The city tax office shows the deed is in the father and sons name. The father is deceased as of August 2012, and the mother is in a nursing home and the son is in a correctional facility. I contacted the tax office and asked the clerk if I could buy a tax certificate on the property and the clerk said I could purchase the property at a tax sale. OK the taxes are behind since 2002. I visited the mother in the nursing home and she said the city had visited her 2 weeks earlier about the property because no one is living there and the yard needed to be raked and mowed. She let an employee move into the house to live there free. What procedures can I take to inquire the property? I am really intereste in this property.


  5. Hi, My name is Teresa I live in a small town in Texas and I would like to know if by any chance a property could be purchased if the owners have not paid taxes since the year 2002. The city tax office shows the deed is in the father and sons name. The father is deceased as of August 2012, and the mother is in a nursing home and the son is in a correctional facility. I contacted the tax office and asked the clerk if I could buy a tax certificate on the property and the clerk said I could purchase the property at a tax sale. OK the taxes are behind since 2002. I visited the mother in the nursing home and she said the city had visited her 2 weeks earlier about the property because no one is living there and the yard needed to be raked and mowed. She let an employee move into the house to live there free. What procedures can I take to inquire the property? I am really intereste in this property.


  6. Hi, my name is Morgan and I live in Austin, TX and I wish to know how to start my investing in tax liens and tax deeds. I wanted to start with liens because I don't have enough money to jump right to deeds. But I noticed that Texas does not sell tax liens, so I am kind of stuck between a rock and a hard place. Is there a possible online list of properties across the country that you could buy online, or is that not possible. I need help :(


  7. Hate to tell you Julia,most of it is junk.You just have to keep digging to find the diamond.


  8. My question is where to obtain the listings, as the ones I have found in the City of Dallas, TX is nothing but junk properties, and properties with dwelling. Where do I get the list with the real property being worth the investment.