How to buy a tax deed at the Fulton County Tax Sale, Atlanta, GA

[Dan Mahoney]

I thought I would share my experience of how to buy tax deeds on the steps of the Fulton County Courthouse in Atlanta, Georgia. This is a long post because it is actually a complicated process. Please note that these details are specific to Georgia and, in some cases, to Fulton County. Also, I am not a lawyer or real estate agent, and I am only sharing my own experiences and understanding. But I know there are a lot of investors in Atlanta and I thought some might find this interesting as a way to invest in distressed real estate. Please note before reading this that this is not an opportunity for "no money down" investing. When you bid on a tax deed at the Sheriff's auction you must have sufficient cash in the bank to be able to get a cashier's check to cover the full amount of the purchase on the day of the auction and you must be able to live without the cash as it often takes a year or more before tax deed investing provides any return of capital.

What is a Georgia Tax Deed?

Georgia tax deeds are the result of state laws that require county Sheriffs to levy and auction real property at the request of a taxing authority to recover unpaid property taxes.

In the state of Georgia, there is a multi-step process for county Tax Commissioners to collect delinquent property taxes. First, the taxing authority seeking to collect the delinquent taxes (county, city, or state) will place a lien on the property (also called a fi fa or fieri facias). This lien is a superpriority lien, so it sits ahead of all mortgages and nearly all other liens (liens held by the US Government are a notable exception). If the property owner or mortgage holder pays off the lien (with interest and penalties), the lien is cancelled. If the lien remains unpaid, the tax authority can order the County Sheriff to auction the property on the courthouse steps and use the proceeds to pay the tax bill. This takes place at the monthly the tax sale, and the Sheriff will issue successful bidders a tax deed that gives the bidder an incomplete interest in the property (more on this later).

In some Georgia counties, especially Fulton County, the Tax Commissioner will sell outstanding tax liens in bulk to third party investors. The largest such investor in Fulton County is Vesta Holdings, but there are a few other firms that do this. This practice enables the Tax Commissioner to maintain a very high collection rate because the investor absorbs the risk of loss (but also the potential for profit). In these cases, it is up to the lienholder to order the County Sheriff to auction the property. Other than this additional step, the process of buying tax deeds is the same as if the city or county itself ordered the auction.

What are the rights of a Georgia Tax Deed owner?

An investor buys a tax deed in Georgia expecting one of two outcomes: either the tax deed is redeemed at a premium (by law, 20% over the auction price during the first year) or the tax deed buyer ends up owning the property outright.

The buyer of a Georgia Tax Deed obtains a redeemable ownership interest in the property. This means that the property owner or another lien holder has the right to redeem the tax deed from the buyer for 120% of the amount paid by the tax deed buyer in the auction. If they do not redeem within a year, the tax deed buyer can initiate a legal process to terminate the right of redemption. This process takes 45 days and once it is complete, the tax deed buyer becomes the sole owner of the property and can take possession. During the time the tax deed is still redeemable (i.e., at least for the first year plus 45 days) the tax deed buyer cannot legally enter the property. As a practical matter, this means the buyer must wait over a year before renovating or renting the property. The redemption period can be extended at the option of the tax deed buyer, meaning that the tax deed buyer may initiate the process to terminate the right of redemption after one year, but is not required to do so. As long as the right of redemption has not been terminated, the property owner or lien holder may redeem the property, but the price of redemption goes up to 130% after one year and an additional 10% for each year thereafter.

After terminating the right of redemption, the tax deed buyer becomes the property owner of record and the original owner and nearly all lien holders permanently lose their interest in the property. However, the title is still considered clouded and most title insurance companies will not insure title on the property without an order from the county's Superior Court "quieting" title. As a practical matter this makes it difficult if not impossible to obtain a mortgage on the property without completing a quiet title action in Superior Court. This is a non-trivial process that takes time and money, but is in most cases necessary to finance or sell the property to a retail buyer. However, you can rent the property out or sell to another investor without completing a quiet title action.

Given these two potential outcomes of buying tax deeds, investors may develop a strategy to bid on properties that are likely to redeem (e.g., properties where the value significantly exceeds the unpaid taxes or where there is an outstanding mortgage) or focus on properties that are unlikely to be redeemed (e.g., abandoned or dilapidated properties) in hopes of acquiring the property outright.

When and where is the Fulton County Tax sale?

As required by law, the Fulton County Sheriff's office conducts its tax sale on the steps of the Fulton County Courthouse on the first Tuesday of each month beginning at 10:00 AM (though they occasionally skip a month). It usually takes 2-3 hours for them to work through the list, which usually includes over 100 properties. If you are facing the Courthouse on the Pryor St. side, you will see a crowd start to form on the far left hand side of the courthouse steps, near the top. A few minutes before 10:00, they will set up a podium right outside the courthouse door on the left side. Right at 10:00 a uniformed deputy will come out with a few staffers and will immediately begin the auction. The staffers will videotape the auction and keep track of the successful bids and names of the buyers. You do not need to check in with the staffers at the podium to participate in the auction.

How does the auction work?

For each property, the deputy will read off the legal description of the property, the address, and the minimum bid. He will then ask if there are any bids. On a few properties, there will be no bid and the deputy will move on to the next one. Usually someone will open with the minimum bid, and it goes up from there until there is only one bidder left. You have to verbally call out the dollar amount of your bid and the deputy has to hear you and repeat it back for it to count. The deputy's decision to close the bidding is final and he will not repeat himself or reopen bidding even if you ask. Once he has identified the winning bidder, he will ask for the bidder's name and then announce it for the record. Most bidders buy in the name of an LLC. The auction will then immediately move on to the next property.

In any given month the majority of the properties auctioned will be single family houses worth less than $50k but there are usually a handful of higher-value properties that will auction for substantially more. Competition is stiff for the nicer houses/condos and rentable commercial properties. There are even a few folks on the phone with investors bidding live on these higher-end properties.

There is an interesting cast of characters at the Fulton County tax sale. Front and center (literally) is the representative from Vesta Holdings, the tax lien investor I mentioned earlier in this post. She is the most prolific bidder in the tax sale and often bids aggressively on properties for which Vesta already owns the lien. There are also a couple dozen regulars and another couple dozen novices, some of whom wandered over from the bank foreclosure auctions happening on the other end of the courthouse steps.

How can you prepare for the auction?

For each property that will be auctioned in a tax sale, the Sheriff publishes a legal notice in the Daily Report newspaper on each of the four consecutive Fridays prior to the date of the tax sale. The ad contains the Sheriff's file number, the Tax Assessor's parcel ID, the amount of unpaid taxes they are seeking to collect, and the tax years that are included in the unpaid balance. The ad also contains a brief property description that may include the address but often does not. You can find the ads on www.dailyreportonline.com under public notices (click on browse public notices, select "non-judicial tax sale" from the check boxes and enter the relevant dates you are looking for). These will be your first preview of the properties that will be auctioned, but the data is a bit hard to consume because there are often 200+ properties and you have to read through each individual ad to get the pertinent information. But if you really want to get a head start on analyzing properties you can grab the parcel ID from the ads and go to www.fultonassessor.org to look up the detailed information on each property.

I generally find it more efficient to wait for the Sheriff to publish the list of tax sales on his own web site www.fultonsheriff.org because this list contains the address (number and street) for each property. The list is also provided in order of the Sheriff's file number, which is the order that the properties will be auctioned on tax sale day. This is helpful to have on hand during the auction because it is easy to lose track of things, especially since many of the listed properties will resolve their unpaid taxes prior to the tax sale and will not actually be auctioned. The Sheriff's list usually comes out in the middle of the month, so you have 2-3 weeks before the date of the tax sale to do your prep work. My first step in analyzing the properties on the list is to copy the data from the Sheriff's list into an excel spreadsheet. I then add two columns to the spreadsheet with headers "City" and "State" and I enter "Atlanta" for city in each row and "GA" for state (just copy and paste). Technically some of the properties will be in other Fulton County cities like College Park or East Point but putting Atlanta will still work for mapping the properties, which is the next step.

Once I have the spreadsheet with full addresses I go to www.batchgeo.com and paste three columns (address, city, state) from the excel sheet (including headers) into the box on the BatchGeo home page. The software then creates a map of all of the properties that will be auctioned off. I find this to be incredibly helpful in assessing which properties to do further research on because I focus on a few neighborhoods and I don't recognize all the street names on sight.

Once you have picked out a subset of properties from the map for further investigation, you can begin gathering data to come up with your maximum bid for each, which should be well below your estimate of fair market value. I usually start at www.fultonassessor.org to get basic info on the property such as size of lot, size of building, year constructed, beds/baths, assessed value, etc. Then I go to www.dailyreportonline.com and find the unpaid taxes for the property in the ad as described above. The minimum bid amount will be slightly above the amount of unpaid taxes because the Sheriff adds an administrative fee for handling the auction. It is helpful to know the minimum bid amount because if you don't think the property is worth more than the minimum bid, you can stop your research and move on to the next property. Next I usually check out Google Maps to get a street view. These may be a little out of date but if you see a vacant or boarded up property, chances are it is still vacant. You can also get a sense for what the neighborhood looks like. Then I check Zillow to see if the house has recently been listed for sale or for rent. I ignore the Zestimate as I find that it overstates the value of tax sale properties, which are generally in worse shape than the comps Zillow's algorithm is using. If I'm still interested at this point I come up with a tentative maximum bid. Before the auction date, I make sure to drive by the property and check it out in person. Obviously you can't go in but you can look from the street. I will then finalize my maximum bid, which I will not exceed at the auction. You need to have the discipline not to chase.

What happens if you are the winning bidder at the auction?

I haven't seen this part explained anywhere and I had to learn it real time. When you are the winning bidder, the deputy will ask you to say your name, and he will read it into the record. If you are a regular buyer, the staff knows who you are and you can stay in the crowd. If you are new, the staff will ask you to come up to the front with your Driver's License and they will write down your contact information while the deputy is auctioning off the next property. If you happen to win more than one bid at the tax sale, you will only have to do this once. Be sure to give them the name of the entity that will purchase the deeds. There are a few reasons why an LLC makes sense here, most notably that you don't want to take any chances that tax liens or collections will somehow get onto your personal credit report in error.

You will need to remember the amounts of your winning bids because you will not receive a confirmation or invoice on the courthouse steps. Usually this is easy because it is a round number like $14,000. When you've bid the minimum, however, and there are no other bidders, you will owe an amount like $6,721.42 and you will want to know the exact amount so you can get a cashier's check.

After the sale concludes, the staff will return the records of the auction to the Sheriff's cashier on the Central Ave. side of the Courthouse. You will need to go to the bank, get a cashier's check for the exact amount of your total winning bids, and bring it to the Sheriff's cashier before 3:00 PM the same day. You only need one check for the whole auction, you do not need a separate check for each property. If you some how make a mistake on the exact change (I have done this) the cashier MAY be willing to accept a few dollars or cents in cash to get to the exact amount but this annoys them. When you get to the cashier you need to sign in at the window and wait until they call your name. You then hand over the cashier's check and wait again for them to generate your receipt(s). Congratulations, you're done for the day.

You do not receive the signed tax deeds on the day of the auction, you have to come back a few weeks later to pick them up. You are responsible for recording these yourself with the Clerk of the Superior Court (I recommend making a copy first). To do this you go to the deed recording room on the same floor as the Sheriff's cashier and use the computer terminal there to fill out a form PT-61 for each property which calculates your transfer tax. Once you've filed the form PT-61 you can go to the window and pay the transfer tax and the recording fee. They accept credit or debit cards, which is nice. Once recorded, the tax deed will show up on any title search and will preclude the property from being sold or mortgaged without first redeeming your tax deed. After it completes its processing, the Clerk's office will mail the original recorded deeds to the address you provide.

What happens after you obtain the tax deed?

Your next step depends on your investment strategy. If you are hoping for the tax deed to be redeemed, you may want to contact the owner, the bank, or another lienholder to discuss redemption. If the owner or lienholder redeems the property, you will record a quit claim deed releasing your interest in the property. This is the easiest path to profit with tax deeds because no further work or investment is required on the investor's part. Some investors elect not to terminate the right of redemption after the first year in hopes the property will eventually be redeemed at an ever increasing premium. One way to look at owning a tax deed is as a long-term option on the property that never really expires.

If you want to ultimately take over the property, you may elect to just wait out the year or, if you hope to speed things up, you might try to contact the owner and ask them to quit claim their interest to you. There are some other more advanced options such as trying to acquire an unrelated lien on the property and using that to redeem the tax deed. You should know what you are doing before you try that. If your strategy is to take over the property, you will need to work with a lawyer who understands Georgia tax deeds to complete the "barment" process, which will terminate the right of redemption. Make sure you include these future legal costs in your analysis when you determine maximum bid amounts.

Closing thoughts

The monthly Fulton County tax sale is an interesting quirk in the Atlanta real estate market. The auction can be competitive but if an investor is willing to put in the work and jump through the necessary hoops, there are attractive investment opportunities each month, including the opportunity to buy single family houses for less than $10,000. Due diligence is key in this strategy because you will very rarely have a chance to see the inside of a property before bidding. Most of these properties are cheap for a reason.

In my opinion the real value of tax deed investing is all of the embedded options it provides. There are multiple paths to profit (or loss) and as an investor you have a wide array of choices for how you seek to maxmize your return.