Tax deed sale
From Wikipedia, the free encyclopedia
A tax deed sale is the forced sale, conducted by a governmental agency, of real estate for nonpayment of taxes. It is one of two methodologies used by governmental agencies to collect delinquent taxes owed on real estate, the other being the tax lien sale.
[edit] Tax Deed Sale Process
Real estate taxes are considered delinquent if not paid within a specified period of time. If the taxes are not paid, after legal requirements are met (such as giving proper notice to the property owner as well as others holding an interest in the property, or by filing required action in the courts), the property is offered for sale at a public auction.
A Tax Lien represents a lien of unpaid real estate taxes, assessments, including penalties, advertising costs and fees. If the property owner fails to pay the delinquent taxes during a specified period of time, the county government can sell what is called a Tax Lien Certificate on the property. The Tax Lien Certificate represents the outstanding taxes on the property. Many county governments sell the Tax Lien Certificates to investors so that the county may recoup the delinquent taxes. In exchange for the purchase, county governments offer the investors interest on those Tax Lien Certificates and the guarantee that those Tax Lien Certificates will be paid off within a predetermined period of time. Interest accrues on the Tax Lien Certificate over a specified course of time until the taxes are paid. A Tax Lien Certificate is a first position lien (Senior Lien) on the property. In most states, if the property owner does not redeem the Tax Lien Certificate within a specified time period the holder of the certificate can ask the county government to begin procedures to auction the property to the public. Proceeds from the auction will pay off the Tax Lien Certificate Holder(s).
Florida attorney and tax lien and deed investor Larry Loftis states that about one-half of the U.S. states are "lien" states and one-half are "deed" states, with a number of states as "hybrids." Unlike a tax lien, where only a lien on the property is being sold, a tax deed state is where the county is actually selling the property for failure to pay the property taxes. Some deed states, such as Texas and Georgia, are somewhat of a hybrid in that they sell the property at a tax deed sale, yet allow the owner a redemption period to pay of the lien and reclaim the property. A few states, such as Florida, New York, and Ohio, have both tax lien and tax deed sales.
At a tax deed sale, the minimum bid is generally the amount of back taxes owed plus interest, as well as costs associated with selling the property. Bidding is done in increments from $10–$100 in most states. In the event the property is not purchased, title may revert to the county government. In most jurisdictions, the county transfers title in a tax deed sale through either a Tax Deed or a Sheriff's Deed (see Loftis below). The purchaser of a tax deed may transfer title through a quitclaim deed but would need a quiet title action to sell with a Warranty Deed (given that a Tax Deed, Sheriff's Deed, or quitclaim deed are insufficient to acquire title insurance).
The hybrid jurisdictions allow a "redemption period," whereby the former owner has a specified amount of time to reclaim the property by repaying the amount bid at auction plus a penalty. For example, Texas allows a 6-month (for non-homestead, non-agricultural properties) or two-year period (homestead or agricultural properties), with a flat 25% penalty to be added to the amount paid at the sale, while Tennessee allows a full year, with a 10% penalty. As such, purchasers of properties at tax deed sales are cautioned not to make major improvements on the property until after the redemption period has expired.
[edit] References
- Larry B. Loftis,. Profit by Investing in Real Estate Tax Liens : Earn Safe, Secured, and Fixed Returns Every Time. Dearborn Trade, a Kaplan Professional Company. ISBN 0-7931-9517-9.
- Don Sausa,. Complete Guide to Real Estate Tax Liens and Foreclosure Deeds : Learn in 7 Days. The Vision Press. ISBN 0-9788-3468-2. OCLC 77059156.
