Are Tax Deed Sales Lucrative?

[Zamir Kazi]

Hello all,

Recently I have been looking into tax deed sales, and a friend of mine told me if you win a tax deed auction, you get the title free and clear. Is this true? What is the process of doing so?

They hold an auction every Thursday in my area, was planning on going this week and checking it out.

From my understanding if you win a tax deed auction, there is a waiting period for other lien holders to claim that their lien is more substantial to yours.

Would I need to get a Real estate attorney involved? How much does this all usually cost?

Thanks in advance for your help!

[Matt Devincenzo]

As others have said it can/will be state specific. I invest in FL (Orange, Seminole and Volusia) and this is based on those areas.

First you somewhat need to understand the tax lien foreclosure process. A lien holder purchases the certificate at sale, if the property owner doesn't pay the back taxes then the certificate holder can proceed to sale. They apply for tax sale and any potential parties must be notified (other lien holders, owners ect). Once that is done the property is auctioned and if it sells "you" become the owner via a tax deed.

First: FL is not a redemption state. Meaning after the sale there is no period of time in which the owner could come back and pay the back money (including any associated costs) and reclaim ownership of the property. This is true in other states, and you need to know how long that is to "plan" your course of action. 

Second: You do receive a "free and clear" tax deed...sort of. While other liens are extinguished by the sale, you do not have clear title. There is always a possibility that the notification was not done properly and there is a lien holder who has rights to the property...this places a cloud on title. This is a problem in the fact that any lender will require title insurance in order to fund a loan against the property. 

Two ways to clear this up. One you wait 4 years during which time no one will insure title (that I know of). You could sell the property, but anyone buying would need to be a cash buyer, and they would be buying with the same clouded title until the 4 years was up. 

Second way is you pursue a "quiet title action". This is basically a legal proceeding to verify that all lien holders/owner's rights were extinguished and the property title is clear. Once that is done you would now have a marketable title again and could sell or refinance using conventional lending. This costs about $3-4000 I believe.

The big thing to understand here is "clear title" and "free and clear" (of liens and encumberances) are two vastly different things. As long as you understand the difference, and budget accordingly then you're on the right track.