Foreclosure Auction vs Tax Auction Whats the difference?

Question

Many people caution against purchasing property from auctions because the transaction may be complicated but I am not sure I fully understand the difference between the two auction types.

How can a property be auctioned for non-payment of property taxes instead of foreclosed? Does this mean that the property owner paid the mortgage but did not pay the property tax?

From what I understand, if you purchase a property from a tax auction you are still reliable for the mortgage lien(s) on the title, but I am assuming that if you purchase from a foreclosure auction, that lien gets satisfied somehow. Can anyone give me some insight on this?

Josh Carr · Answer

@Angel Perez If you are bidding at a tax auction in CA you are bidding up on the back taxes of 5 years for a structured or residential property, 3 years if it's agricultural, and 2 years if it's forest land.  You will need to put a deposit down of approximately 5K to bid at the auction.  If you are the highest bidder you will be the winning bidder and will acquire the property.  There is a litigation law in CA which allows the property owner a year's time to contest in court for an erroneous sale (just in case the taxes were paid but the sale had already been set, etc.).  The suggestion is to stay away from rehab or resell during this timeline.

A foreclosure sale has a similar outcome with property acquisition but the reason for the sale is different.  A foreclosure auction is due to the lack of mortgage payments and the mortgage company has decided to put the property up for sale to recoup what is possible from the previous loan unpaid.  There will be a deposit required for the auction and there will be a mortgage involved unless you are paying cash.  Either way you will be the highest bidder to be the winning bidder for both auction types.  If you are the winning bidder of a mortgage foreclosure sale then you will be able to do what you want with the property once the sale has closed.

Brent Shields · Answer

yes, I have made money with all of those methods.

Tax liens are probably the most difficult because there will usually be several hundred people bidding on the properties, depending which county your trying to buy from. I have made the least amount of money from this method.

Bidding at the foreclosure sales would be some where in the middle, once again depending on the county your working.

And pre foreclosures would probably be the easiest, but you will be looking at a lot more properties, and the largest percentage of them the owners are not going to be interested in selling.

But when you do hit the person who wants to sell then you have the least competition and the most amount of time to work on a deal with them.

It really just comes down to how you want to spend your time, and what you want to learn.

I would say the fastest way to learn is to find someone who has done it and get them to show you how it works.

Lynnette E. · Answer

Often tax lien property in CA are nuisance properties.  For example, the housing has an issue that will cost more to fix than the house and property is worth, eg. an old stone foundation that has slipped.  A house near here I used to live goes up for auction about every 5-6 years.  The house is pretty, but it has slipped off its foundation and is sliding down the hill it sits on.  It detached from the water, septic system years ago.  Additionally the hill is not stable, but is sliding too.  Its not fixable.  People pay a pretty good price for the house, then go in, see the problem and let it go back up to auction.  There are also empty lots that serve as flood control basins by easements.  They go up for auction often too.  There are not mortgages on these properties, they just resell over and over as tax sales.

Other properties have paid off mortgages and either the people are elderly and do not have the money for the taxes or the property's owners passed away and no one has processed probate, etc.

Occasionally the properties have been for sale for a long time and no one will buy the property, so they let it go to tax auction.  This happens a lot with timeshare properties.

Most properties with mortgages would escrow the taxes and they would be foreclosed on, and not go to a tax auction.

Brent Shields · Answer

In California if you don't pay your property taxes for 5 years, or if you have a nuisance abatement lien then it's 3 years, and they can sell your house.

Many of the properties don't have loans so there is no lender to foreclose, or if their is a lender then they don't want to foreclose or they don't want the property back for some reason.

Probably once in a great while you will get some one crazy enough to pay their loan but not pay their taxes, but it would be very rare.

If you purchase from a tax auction in California then you are only responsible for government liens or judgments, everything else is removed.

If you are the winning bidder at a foreclosure auction, then it depends on the position of the loan that you were bidding on.

For example: if your bidding on a loan in 1st position it will wipe out any loans in 2nd and 3rd position.

if your bidding on a 2nd, then it will wipe out a loan in 3rd position but not a loan in 1st position.

So now your ready to go start bidding... (that was a joke).

My advice to you would be, if you really want to start bidding on either of these sales, then find someone who has done it a bunch of times and work with them.

Angel Perez · Answer

@Brent Shields I appreciate the advice. Thanks for the help.

Angel Perez · Answer

@Brent Shields thanks for the insight here. That falls in line with the research I have been doing on tax auctions in California. Have you had any success in these types of investment properties? Have you ever done pre foreclosure sales? Can you recommend any place for me to get more informed on this topic?

Foreclosure Auction vs Tax Auction Whats the difference?

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