Vacant Land Tax Deed Bid In Texas - What To Do About IRS and State Tax Liens Post Purchase

[Bryan Hancock]

We have been negotiating with a seller for a piece of land we intend to develop (if purchased) in Texas for several weeks now and I don't think we'll get a contract. We are gearing up from a procedure standpoint to bid on the tax deed at auction. We have one more week to ink a contract and cure 1 of 3 liens (the county taxes) and contract with the seller.

Scenario:

-Vacant land => Upside unknown because we don't have time to get things through the city, but the floor price is valuing it at 2 buildable lots which represent a value of about $40k for us based on what has to be done to the property for utilities, site planning variances, etc.

-Three liens:

1. County taxes = $28k
2. Federal taxes = $8k
3. State taxes = $250

that is it....all verified by our super duper title company.

The county is the one foreclosing and the seller won't take $40k for the property even though he stands to make a little bit of money for doing so. We offered to pay for the balance of the closing costs so he'll clear roughly $3,750 by doing so.

We have thought about a number of strategies for buying this property:

4. Offering the seller to participate with a profits sharing agreement. I like the guy, but we really don't want to get in bed with him

5. Offering some options during his 6-month redemption period (not his homestead...vacant land) so that we can pay things off post auction once we have had more time to do due diligence on valuations for more lots. The property was contracted for $160k in 2009 prior to the crash and it fell out during the crash

6. Buying at auction. More on this below along with questions

7. Paying off county tax lien and getting deed of trust from him to record in trade to basically take the county's position. Then we could foreclose and pay off the other liens. Since the county is the one foreclosing we'll need $28k to do this in trade for the same in a deed

I would really prefer to do number 7, but I am not sure he'll agree to this at a contract price of $40k. Thus buying at auction seems like the best scenario. After the auction these liens will still be attached though....ugh.

I am worried that these taxing authorities will go after us for the money during his redemption period and thus we'd have to pay them off. If he redeems we're screwed because we already shelled out this money. There is also the problem of this potentially polluting my credit during the 6-month redemption period.

Questions:

-Will this pollute my credit if I buy the deed at auction if the IRS or state go after us for the taxes during the redemption period?

-Any thoughts on how I can buy this for $40k? Before auction, at auction, or after auction (during redemption period) are all fine. We want the property though and don't want to pay more for it because of the uncertainty associated with the variance for subdivision. If we had more time we could pay more, but we don't have more time

-If more than $28k (the county lien) is bid at auction do the excess proceeds go to pay off the other liens, to the county, or somewhere else? If we bid $40k at the auction and the excess proceeds went to pay off the other liens we would be golden assuming this is the high bid. This is probably unlikely because the property is worth more to someone willing to take the risk associated with variances and being able to build more than 2 houses on the land. 4 or 6 seem to be likely, but we won't know until we submit things to the city

Advice or commentary is appreciated.