County tax auctions - are there any catches?

Question

I have attended a few tax auctions locally.  A BUNCH of properties.   Terms of the auction are I believe 500 cash and write a check for the balance the day of the auction.  Now I am not going to go pull loan money not knowing if I will win anything so my thought was to write a hot check and get the funds moved asap.

Also, my biggest concern is buying a nightmare since we cannot really fully inspect these homes.  Is there hidden fees and contingencies?  I also hear getting into the homes can take months at times.  Is this correct?

Jim Wineinger · Answer

Jesse, That might not be true. I have seen several pieces of property that were sold at auction that had a bank listed as a lienholder(pary of interest).

At worse case you should be able to recieve interest on the monies that you spent on the property. And some banks do choose not to throw good money after bad (especially in these economic times) and do not redeem the property for the landowner and thus they both loose out.

Very good buys can be found and had at these tax sales when you have learned how to do your due diligence properly and many deals can be had that are not great but good.

There are definately pitfalls to watch out for but if you are willing to take the risk they can be more profitable than most other real estate dealings.

Jim Wineinger · Answer

Just like any foreclosure sale the property (or lien) is sold to the highest bidder. Governmental liens always take on 1st position no matter when they are filed and most of them will contact all known lienholders about the impending sale. They will then come to the courthouse before the sale date and pay the taxes for the homeowner and add them to their lien.  This is why most of the advertised properties do not make it to the actual sale. The lienholders come and pay those taxes and add it to the amount of the lien that they hold against the property. This removes the governmental lien and puts them back in the 1st position.

If no one pays those taxes and it does get sold at the auction then the lienholder can make a claim against any money the government has left over from what the property sold for after the government pays up the taxes the court costs and attorney fees and late fees and penelties. After all this if there is still money left over the 2nd or 3rd position lienholders can claim that money. And after all that if there is still some moneis left over the previous homeowner can claim that money!!!

It is like any other foreclosure sold for the highest bid. The 1st position is settled first, then the 2nd, then the 3rd, ect.  If there is not enought money for the 2nd or 3rd, then too bad for them. This is why banks fight to be in the 1st position always and require that all other liens against the property are paid off with the proceeds of the loan.

This seems to be true for most DEED sales. LIEN sales or CERTIFICATE sales are often a different matter. Again you must check with your local county for the actual rules.

Once past the redemption period you can apply for and recieve a DEED but this deed will usually be a "Clerk and Masters deed" or "tax deed", or some other term. It will not be a WARRENTY DEED. And most title companies will not guarantee such a deed as "free and clear" until 2 to 5 years after you recieve such deed. So it is sometimes difficult to sell such a piece of property.

When dealing with these it is best to use a "buy and hold" approach. Buying a little each year and holding those properties until they can be sold and doing this each year will build that nestegg quite readily, but you will not see the rewards for a few years, unless you are lucky. But when you sell that peoperty, using the usual WARRENTY DEED you are guaranteeing to the new owner that the property is free and clear. So if there are any successful challanges a few years up the road, you just guaranteed that you will defend that property in court. You are now on the hook for attorney fees, court costs, and might even have to give them their money back!!!!

Jesse Ramirez · Answer

Thanks for the heads up Jim. I'm not sure if this still holds true or not, but if the property is won at auction will I own free and clear or do liens and notes still hold.

Jim Wineinger · Answer

Dan, I have been dealing with the tax sales for a while now. I would be interested in some of the information that you speak of in pre-auction deals. Please send me a colleague request so that I can send you my personal contact information.

But I do have one main concern with this system as logic would seem to say to me. In most tax auctions the governmental lien takes precedence over any and all other liens (except other governmental liens) and since a pre-auction deal would not make it to the auction then any and all liens would still exist and also have to be taken into account for.

Am I incorrect in my assumptions here?

I am also bringing this thread back to life because a lot of tax sales seem to begin in June and advertising is required in the "legal" paper of the county usually 3 weeks before the sale. Therefore those tax sale opportunities will be popping up right and left for those that are interested.

It would also mean that any pre-auction sales would have to be identified and moved upon quickly.

Michael Madill · Answer

Ok not sure if this thread is still being looked at. If so,  I have a few points to add. I have done a lot of research on the tax deed sales over the past month and I have learned a great deal. I almost purchased a couple of properties but did not get all my due dilligance in time. We all know due dilligance is important but when dealing with tax deed sales, it's extremely important. Trust me!! Conducting the due dilligance may cost money when researching tax property, so be aware of that. I do believe that there are good deals in tax sales but it sure is a daunting task.

Tiffany, you could just look up the owners name and attempt to contact them about there distressed property. Not sure what county your looking in, but all county web sites should have the information you need. Just look up the ALT # and cross reference that with your county property appraiser office or website. That will give you the owners name and should get you the owners address. May not be a current address but chances are that it is. Hope this helps!

James C · Answer

How would one be able to buy pre-auction? Go to the county, the owner?

Donna Payne · Answer

Thanks MBM for your comments.
            
            I'm a newbie looking for good tax deed sales info.
            
            Best, dp

Michael Madill · Answer

Josh,

I live in Florida as well and I am looking to purchase some properties at a tax DEED sale. Just wondering if you have done this before? If so, i have a few questions.

1. What is the going rate for a quiet title?

2. How long did it take to get the cleared title?

3. Is there any risk to me during this period, such as: could I be responsible for paying hidden liens?

4. And finally, once you become the highest bidder and you pay, how long untill you recieve the deed?

Josh Morgan · Answer

Tax Deed Sales are all about knowing the laws in your state surrounding the terms of the sale.  Also you must make sure to do your due diligence on any property you plan on making a bid on.  ProbabIy best to have a HML available that will make a loan available when/if you win the property you are looking to bid on.  In my county, you have to pay $200 cash and then the balance within 24 hours so getting the money might be easier than where you are.  Just check the terms of the sale and it would probably be a good idea to attend a sale to just see how they are ran there. Good luck.
            Thanks,
            JT Morgan