Tax Cert Auctions Advice

[Michael Abernathy]

Hello everyone.

I just got a noticed that my county will be conducting their annual tax certificate auction.

I downloaded the list and narrowed it down to areas I'd be interested in.

What are the pitfalls of Tax cert auctions?

The way I understand it is that you bid down the percentage that you are willing to take.  If you win you then you basically have a lien on the property.  If the owner pays the delinquent taxes, the interest is calculated and a check is distributed to the cert holder.  If the owner does not pay, the cert holder can then file for a Tax Deed Application after two years (I assume you would also want to purchase the lien the following year).  This starts the foreclosure process.  If the property does not sell at foreclosure the tax cert holder is required to take deed to the property.

Also, what happens if there is no mortgage on the property?  I found one single family home that does not have a mortgage.

Thanks everyone.

Mike

[David Krulac]

@Michael Abernathy

There are so many pitfalls, I could write a book, maybe 50 books since every state has different laws, rules  and regulations.  I've bought hundreds of tax sale properties and I have 3 rules that I follow:

1.  Know the specific rules of your state, what applies in another state does not apply in every states.  On one property at one sale, I made $300,000, because a big national bank headquartered in CA, mistakenly thought and were advised by council that a certain CA rule applied in another state.  It was so sad, I almost shed a tear.

2.  Do your due diligence, including title search, lien search, code violations, condemnation notices, zoning and local ordinance rules.  I've bought multiple properties with multi-million dollar Federal tax liens, not wiped out by the sale, but in one case I didn't lose a second of sleep, because I knew of a law that only applies to 17 states, and the property I bought was in one of those 17.  Nobody else bid on the property and I got for minimum opening bid.  In another case, two attorneys said that there was "nothing that could be done" with the property.  In an auction attend by SRO, nobody bid on the property except me.  Profit was well over $600,000.  Two attorneys were wrong!

3.  Always physically view the property in person, don't rely on any online imaging/photos.  Sometimes those photos are years old.  Recently saw one that was 4 years old.  At one sale the house burnt to the ground a couple days before the tax sale.  Suspicion was on the disgruntled owner, but nothing was ever proved and nobody did jail time.  But bidders who either hadn't seen the property in the last 48 hours, didn't read the newspaper or watch TV, were feverishly bidding on a house totally rendered into a pile of ashes.

As I always say buying property/liens at tax sale is the most dangerous way of buying real estate, no home inspections, usually can't see the inside, no home warranty and no do-over.  Its the wild west of real estate.