How does a delinquent tax auction work in MI?

Question

Hello, I am looking at buying my first tax auction property this upcoming week. The property is located in Kalamazoo, MI. There is nothing wrong with it besides it needing updates. So I feel comfortable buying it at the right price. My question is though.... do I need to do any research about liens against the property. My understanding is the minimum bid is what is owed in taxes and then I’m responsible for the current summer taxes. If I’m wrong could someone let me know how it works? Thank you.

Jesse Morrell · Answer

@Cameron Weld each state is different. You have to research the laws of your state. Google says Michigan has a one year right of redemption.

In Texas, we have a two year redemption period. If redeemed in the first year, it includes 25% interest. If during the second year, it’s 50% interest.

And all liens and mortgages fall off at the Sheriff Tax Sale. So mortgage lenders usually pay the taxes themselves if it’s worth it to them, to avoid the sale.

Also, interest from redemption is based on purchase price and any essential or necessary repairs required for maintaining the property, not on any upgrades. So people don’t upgrade until the redemption periods have expired. You also can’t flip it or get a clear title until the redemption period is over, so these auctions attract more landlords than flippers who prefer trustee auctions which do come with any liens but no redemption periods, in Texas.

It seems typical that liens and mortgages fall off at tax sales but you have to research the laws for your state.

Jessica A. · Answer

Hello. In Michigan, all tax sold properties are sold clear of any liens. Only the federal government, can still hold a lien. For example, there is currently a property listed in the Kalamazoo auction that stipulates that the IRS can redeemed the property by a certain date. If this happens, you are reimbursed your funds, so you aren’t just SOL. I live in K-zoo, and I can tell you be prepared to pay up. Because of the low risk and immediate possession that MIchigan offers, houses often go for way more than they should. I have bid on properties in the last several auctions, and have been significantly outbid on every one. Obviously, I am familiar with the area so I know what going prices should be. I would focus your due diligence on the neighborhood and ARV, if you are bidding from out of town. Good luck!

Dylan Tanaka · Answer

You'll need title insurance with no exceptions like reversionary interest.  Without a title policy you are not guaranteed clear title.

Jessica A. · Answer

@Cameron Weld. To my understanding yes. There is a FAQ section on the tax sale auction website that explains it a little better than I probably have!

Cameron Weld · Answer

Jessica thank you for the insight! So would I be safe to assume that unless there is an IRS lien... then I’m free and clear?

Paul Doty · Answer

@Jessica A. Thank you for the tips.I remember looking at #4865. It was a little bigger of a project than what I'm interested in now. Lots 4607 & 4609 are in the part of town I like. 4609 does have a high opening bid, but I think there is still some good room for profit. The whole project will be a bit too expensive for me this time around.

Jessica A. · Answer

@Paul Doty. I think it was lot #4865. It’s a 4 unit apartment building. You have to scroll to near the bottom of the description to see the IRS notification.  Lot 4548 would be a great buy if you’re looking for SF. It’s in a great area of town. Both the apartment buildings would be good buys also. Lot 4609 is in an area that’s seeing a lot of growth, but the opening bid seems a little high. I don’t have a huge budget so most of these will be out of my range. 4607 is rough but I’m looking at it only because it’s across the street from my rental. The rest are in more unstable neighborhoods so I’m passing on those. This is just my opinion. Hope it helps!

Paul Doty · Answer

Hi Jessica,Where in the listings is the IRS stipulation? I recall seeing it on one recently, but can't seem to find it again.

Do you see any properties you like? I see a couple that interest me, but likely won't be a competitive enough bidder.

Jesse Morrell · Answer

@Cameron Weld if you go to the county clerk office or website, you can pull the title history yourself for free because its public record and look for any liens that have been filed against the property. But in Texas, those liens don’t matter for sheriff tax sales.

How does a delinquent tax auction work in MI?

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