Spokane, WA · Member since 2020 · 29 posts · 22 votes
In Washington state, tax sales provide the buyer a deed, not a tax lien, and nearly all other liens are wiped clean at the end of the auction. Liens that persist would include government liens, like IRS or anything from the city, county, or state.
My county treasurer's website warns that although liens are wiped out, lienholders may still sue to get some of that money from the person who purchased the deed at tax auction.
My question is to anybody who has purchased property at a tax deed sale -- have you had a lienholder pursue litigation after you've purchased the deed? If so, what happened? What advice would you give to help avoid problems
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
5y
@Aaron Smith I do not specifically know about Washington State. I do know that in most states that do tax deed sales. in order to get title insurance you need to do a "Quiet Title" action. The reason for this I assume is title insurance companies don't feel confident that the municipalities will do the tax foreclosure correctly.
Not doing the tax foreclosure correctly leads to the issue you are asking about. Yes, liens are supposed to be wiped out. However the lien holders have to be notified and proper procedures followed for this to happen. If a lien holder is not notified then their lien may still be valid and they could come after you for the lien.
I assume this is pretty rare and a properly done quiet title action would take care of this. However a lien holder could object during the quiet title action. I have never been in this situation but I assume they would need then to redeem the tax deed in which case you would be compensated but not get to keep the property. If they did not redeem then the quiet title action should clear them off the title and wipe them out.
I am not an attorney, the above is my laypersons understanding of the law. You should talk to an attorney the specializes in tax sales and or quiet title actions.
Spokane, WA · Member since 2020 · 29 posts · 22 votes
5y
@Ned Carey Thank you -- I've read a little about quiet title and definitely need to consult an attorney on this. I guess the next question is how much to put into the property before the quiet title is completed. All a matter of risk toler, I suppose.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
5y
@Aaron Smith this is where specific state laws matter.
It is possible that in order to redeem, if the tax sale were ever challenged, that the former owner or any lien holder would have to compensate you for any repairs spent on the property. However it is also possible that you are screwed and at risk for any money you spend.
This is why knowing specific state laws matters so much. I spend a lot of time ready state statues on tax sale laws. However this could also be something not addressed in the statues but may have been addressed in a previous court case that set a precedent.