Bidding on tax auction property

[Kim Frantum]

I'm thinking about bidding on a property at a state tax auction. It's a solid investment, Northern Michigan cottage with lake frontage. It will be a great STR for all four seasons or a quick flip depending on how high the bidding goes.

Here’s my question – This is the first time I’ve ever done anything like this and since you need cash on hand, I’m thinking about taking a low interest personal loan for the purchase and repairs. The plan is to pull cash out or sell and repay the loan within a few months.

I would love some insight on this. Thanks!

[Kevin Sobilo]

@Kim Frantum, are you aware of the potential title issues you may have with a tax auction property? Even tax sales advertised as "free & clear" are often not quite exactly that.

The details can vary by state, I'm sure but in my state a few of the potential issues are:

- Clouds on the title caused by not notifying interested parties correctly (perhaps requiring a quiet title action)

- IRS Tax liens

- Unpaid estate taxes because many properties were part of estates. So, the estate taxes need to be paid (by you) to clear the issue up

- Inability to get title insurance for a year (in my area) because the tax sale process is so messy. So, that even if the title looks clean they won't issue it. That will likely prevent resale or even refinancing during that time.

Check with a real estate lawyer in your state to discuss the potential issues common where you are.