Tax Deed Investing in Southern California

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Tax Deed Investing in Southern California

Jarred DeArmas
Portland OR · Member since 2014 · 14 posts · 5 votes

Hey guys, I am trying to learn as much as I can about tax deeds in CA, specifically southern CA. Does anyone know if it is possible to go to the county and buy the deed before auction? Ive done some research on a particular property and its owners, and I've found that they've let houses go to tax auction before... like they don't care and its just their M.O. Maybe they are interested in the excess proceeds? 

This particular house is vacant and old with all the signs. The thing is, the property is owned free and clear, with the only lien being the delinquent tax. I believe this is now the 5th year, and I want to make a stab at obtaining this property. If it goes to auction, I probably have little chance, seeing as I don't have much cash and in CA, the opening bid is for the taxes due and it just goes up from there. My only other strategy is to reach out to the owners and offer to purchase the property and pay the tax before it goes to auction, but only if they carried...which shouldn't be an issue since there is no mortgage. I would, assume, I would be helping their situation by putting some money in their pockets and they avoid the hassle of loosing another property.

Thoughts? Tips? Ideas? If I could obtain this property, the possibilities would be endless... I am believer in buy and hold investing, but If I could get in this property cheap enough, I could stand to make a ton of profit on a flip, which i could use to invest into multiple properties and not be forced to scavenge the bottom of the barrel.  

Thanks for the input guys. I am really interested to hear your ideas

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Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
10y
Originally posted by @Jarred DeArmas:

Thanks @Jeff B. I am aware of the Right of Redemption period, partially another reason to try and obtain the property prior to sale. I believe the ROR period is a year, honestly I would be suprised if I got the house at auction and the previous owners tried to redeem it. They've let it go pretty far, and haven't seemed to care about it for a while.

The right of redemption on tax-defaulted property in California ends at the close of business on the last business day prior to the date of the tax deed sale. There is no right of redemption period after the sale. You might be thinking of the one year period after the sale that the previous owner has to challenge the validity of the sale.

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  • David Beckett
    Surrey, British Columbia · Member since 2016 · 15 posts · 4 votes
    10y

    Something you didn't mention as a possibility, is joint venture with the owners. Pay the taxes, you do the reno and split the flip (ton of money) profit with the owners (80/20)?

    1Reply
  • Jarred DeArmas
    OP
    Portland OR · Member since 2014 · 14 posts · 5 votes
    10y

    @David Beckett yea that is an option Ive been thinking of too. 50% of a deal, is better than 100% of no deal. It wouldn't hurt to have a mentor on this, I just haven't gotten there yet. Im trying to figure out what I can about the process. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    its extremely simple...  you need to get to the owner.. it may not be in their best interest though to sell to you.. if they are knowledgeable and have let other properties go to tax sale.. then they know they get the overages.. so if it goes to competitive bidding it will usually sell for a number that is about as good as they can get on the open market.. and they simply have to make a claim for their overages and get a check from the county. 

    if they don't know that and are worried they are just going to lose the property.. then you partner approach or sell to me on contract approach may have some merritt.. although it being Socal and if bid for assets is handling the sale.. If I was advising the owner I tell them to just go for the overages. too many non educated dollars chasing these deals and will many times bid them to FMV or higher. And they don't have to do anything... NO costs.. they don't have to worry about title or escrow.. its all free county just sends them a check the form is one page etc etc.

    but for sure the first step is to talk with them.. you need to find them and start a dialogue.  I have done quite a lot of this over the years and in certain venues ( can't tell you since its my cardinale rule not to create my own competition LOL) the partnership idea works pretty good but comes with a lot of hair.

    I have two that I had to full blown litigate to get the seller off the dime.. once I paid their tax's for them they just go dark.. So be prepared for that.. you could pay tax and they could just sit there another 5 years and it would cost you a pretty good chunk in legal fee's to get them to cooperate and take a few years

    I had 3 of these.. 2 of the 3 went two years and about 10k each in legal fee's to get the judge to rule in our favor.  third one is on going.

    so make sure you have some powder dry if you do the Partnership route.. I have done others that is was no issue.. but again we are well cashed up so we can weather any storm in this regard frankly.

    good luck and let us know who it works out.

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  • Josh Carr
    Wholesaler · Lehi, UT · Member since 2015 · 333 posts · 144 votes
    10y

    You can have them quit claim deed the property to you and if you offer enough so that they accept due to the excess proceeds or overages that they would otherwise get then it's a good deal for you. Keep in mind that you still have to pay the taxes and keep it from going to sale so calculate everything and make sure it's going to pay off for you as the new owner also.  Good luck to you in this adventure.  They may not accept but you won't know if you don't make an offer. 

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  • Jarred DeArmas
    OP
    Portland OR · Member since 2014 · 14 posts · 5 votes
    10y

    @Jay Hinrichs @Josh Carr thanks for the advice. I may have mispoke earlier in regards to the owners letting HOUSES (plural) go to tax auction. I found their last residence, which they actually bought from a family friend back in 2012. I contacted him and he said they bought the place to be closer to a relative who was sick and lived down the road. They sold it in 2014 at a small loss to an investor group. Im not sure why I wrote tax sale before, maybe bc it was on my mind and I am excited. So I am not sure if they know about excess proceeds or not. 

    The good thing is, is that the house is vacant. No one lives there. They have timers for the interior lights, I know because my wife and I walk the dog at 530 in the morning and see them going on and off...I wonder if the electrical bill is being paid. They took down the mail box, and there is newspapers everywhere, but they get cleaned up every once and a while. A few months back I noticed a letter from the city stuck to the front door, thats what got me looking into back taxes.

    I feel that I would try and vett the owners out before making an offer and try to see how they feel and if they care, no use in offering 250 if they would take 150...or 50. If I could get them to cary I think that would be a win win, and get what i assume is a burden to them off their backs. 

    @Josh Carr what does quit claim deed the property mean? I know that I would still have to pay the property taxes, so I would structure it, so that the property taxes are paid first and the remainder is divided up into monthly payments over 20 years or so with maybe 5% interest, so that they are getting a reasonable stream of income every month for nothing. That would in turn leave me with a mortgage thats under $1000 a month and an ARV of $400000+

    I know what I have to do, Ive been reading and preparing for my first deal for a long time...too long. I just never expected that my first deal might be a vacant tax deed property without conventional financing, let alone be a SFR, and possibly a flip. I always saw myself buying a Small Multi family with an FHA and doing a BRRRR, and holding forever, so this is a little out of left field.

    I Have their emails and work places and work phone numbers, I Just don't know what to say!!

    Help haha

    thanks guys

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  • Josh Carr
    Wholesaler · Lehi, UT · Member since 2015 · 333 posts · 144 votes
    10y

    @Jarred DeArmas A quit claim deed is where someone quits their claim to a property and has no claim to it anymore. If they quit claim deed it to you, a necessary step for you is to go to the recorder and make it official.  Then the property is yours.  You will have to see if there are any other liens on the property such as an IRS lien, special assessment, etc. 

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  • Jarred DeArmas
    OP
    Portland OR · Member since 2014 · 14 posts · 5 votes
    10y

    @Josh Carr DUH! haha just like it sounds I guess. Thanks for filling me in there. Are you suggesting to just ask them to sign over interest in the property without offering to purchase it? It sounds like a dream come true, but I doubt it. It definitely is a good document to have signed tho, so there are no questions about the transaction. Thanks for the tip,  I will probably sit down and write a letter with my wife this weekend. Ill keep you all updated!

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  • Josh Carr
    Wholesaler · Lehi, UT · Member since 2015 · 333 posts · 144 votes
    10y

    @Jarred DeArmas That's why I was mentioning the excess proceeds because they are allowed to claim them up to one year after the auction and you never know what a property will go for.  If you give them enough that it helps them to find a new place so that the excess proceeds (overage at the auction) don't make that much difference to the owners, assuming that they know about them.  It's something to consider due to the fact they may say no because of excess proceeds.  That however is a gamble too because they don't know if the property is going to even sell much less for more.  I say if you give them enough to make it worth their while and still give yourself the upper hand it's a win win for everyone.  Remember to do enough research that you are not taken by surprise by anything either.  IE IRS liens, etc.  

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    BEWARE:  Calif has "right of redemption" and you will not get a clear title until after that period expires.  Until then, you can only sit on it and not even paint or rent it out with out risk of loosing the costs of your efforts. (you purchase price will be refunded with interest however).

    0Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    10y

    I would only rely on the advice of those who have completed acquisition of CA properties. Period.

    I'm guessing that @Jay Hinrichs has plenty of experience.

    The strategy you speak of is to acquire the asset prior to tax sale. I agree. This is my preferred method and I never use the tax auctions for acquisition, 

    The key is to get marketable (insurable) title and this is done using a grant deed in CA. It's much easier to obtain title insurance upon acquisition than merely getting a deed from a seller and only using insurance during resale. Title insurance companies are wise to that and typically ask for estoppel agreements and indemnification letters that can largely be avoided if you know how to work deals.

    @Jarred DeArmas you need to understand that there may be commslities in finding deals however all real laws and practices are governed by state laws. Consequently, the details, documentation used, the procedures, timelines and local transition can vary substantially from another state.

    0Reply
  • Jarred DeArmas
    OP
    Portland OR · Member since 2014 · 14 posts · 5 votes
    10y

    Thanks @Jeff B. for the advice. I was just looking at your profile and it sparked something in my memory about this house. "Rick The Probate Guy! Probate and property puzzles solved." I may have mentioned earlier in this thread that there was a notice posted on the door of this property. It was an envelope stuck in the door jam from the city, and after looking at your profile remembered that it said "Petition of Probate" or something along those lines, and had the owners names on the envelope. 

    What does that mean??

    0Reply
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    10y
    Originally posted by @Jarred DeArmas:

    Thanks @Jeff B. I am aware of the Right of Redemption period, partially another reason to try and obtain the property prior to sale. I believe the ROR period is a year, honestly I would be suprised if I got the house at auction and the previous owners tried to redeem it. They've let it go pretty far, and haven't seemed to care about it for a while.

    The right of redemption on tax-defaulted property in California ends at the close of business on the last business day prior to the date of the tax deed sale. There is no right of redemption period after the sale. You might be thinking of the one year period after the sale that the previous owner has to challenge the validity of the sale.

    4Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    10y
    Originally posted by @Kyle J.:
    Originally posted by @Jarred DeArmas:

    Thanks @Jeff B. I am aware of the Right of Redemption period, partially another reason to try and obtain the property prior to sale. I believe the ROR period is a year, honestly I would be suprised if I got the house at auction and the previous owners tried to redeem it. They've let it go pretty far, and haven't seemed to care about it for a while.

    The right of redemption on tax-defaulted property in California ends at the close of business on the last business day prior to the date of the tax deed sale. There is no right of redemption period after the sale. You might be thinking of the one year period after the sale that the previous owner has to challenge the validity of the sale.

     Yep. I totally agree. There is no ROR. Also, the challenge must demonstrate the error in prove up prior to trial of will probably be denied with summary judgment.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Jeff B.  correct there is NO right of redemeption

    there is only proof that the sale was flawed in its inception.

    I had this happen to me one time mid 80s  in a county in N. CA.

    we bought a smoking deal and they hired a lawyer and took it to trial.. we of course thought we would win hands down

    turns out the county that year only published the sale 19 days instead of 21 days as is the law .. so we lost.

    Every single property lost that year could have been over turned but it would have taken court cases in each and every instance..

    we bought well over 100 properties that year and lost that one.

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    0Reply
  • Angelique Barboa
    Member since 2018 · 17 posts · 8 votes
    7y

    @Jarred DeArmas

    There are laws about abandoned property here in California you just can't just take something you have to ask the owner to relinquish it if they choose to do so and there might be heirs as well so you have to be very careful about abandoned property if you go on the unclaimed funds website here in California you'll find information very clearly stated about that or you consistently asked me since that's what I do I'm actually one of the investigators for unfound money here in California as an agent regarding abandoned property unclaimed money Etc

    0Reply
  • Angelique Barboa
    Member since 2018 · 17 posts · 8 votes
    7y

    @Jay Hinrichs

    Perfect advice you have given.

    0Reply
  • Angelique Barboa
    Member since 2018 · 17 posts · 8 votes
    7y

    @Josh Carr

    Perfect device that you have provided.

    0Reply
  • Angelique Barboa
    Member since 2018 · 17 posts · 8 votes
    7y

    @Josh Carr

    Again excellent advice

    0Reply
  • Angelique Barboa
    Member since 2018 · 17 posts · 8 votes
    7y

    @Jeff B.

    Excellent looking out!

    0Reply
  • Angelique Barboa
    Member since 2018 · 17 posts · 8 votes
    7y

    @Rick H. Excellent advise and excellent looking out for everyone

    0Reply
  • Silas B.
    Member since 2021 · 27 posts · 6 votes
    5y

    New here! Looking at buying a tax deed sale home in California. Any risks I should be aware of? I have driven by, checked clerk records for IRS liens, or other tax liens, and called city building department about any permits pulled and code violation for any fines on these properties. Looks like the owners probably passed away and the kids didn't think to pay the taxes. Any Risks I need to really watch out for before bidding tens of thousands on these homes? Thanks so much! (Homing to purchase, do a quite title or title certification, fix up after the 1 year period where the previous owner can challenge in court, and then turn into a rental property). Do I need to wait a year to do the Quite Title or Title Certification in California?

    0Reply
  • Mark Pedroza
    Real Estate Agent · Sacramento/Placer ~ San Francisco Bay Area counties · Member since 2012 · 1k+ posts · 743 votes
    5y
    Originally posted by @Silas B.:

    New here! Looking at buying a tax deed sale home in California. Any risks I should be aware of? I have driven by, checked clerk records for IRS liens, or other tax liens, and called city building department about any permits pulled and code violation for any fines on these properties. Looks like the owners probably passed away and the kids didn't think to pay the taxes. Any Risks I need to really watch out for before bidding tens of thousands on these homes? Thanks so much! (Homing to purchase, do a quite title or title certification, fix up after the 1 year period where the previous owner can challenge in court, and then turn into a rental property). Do I need to wait a year to do the Quite Title or Title Certification in California?

    For information regarding your question, here's a weblink that may interest you:

     https://tedthomas.com/buying-t...

    Use caution..

    1Reply
  • Silas B.
    Member since 2021 · 27 posts · 6 votes
    5y

    Yep, I have read that article.....I guess I am still trying to learn about the risks, like what if the owner claims bankruptcy the day before the auction.....or what if there is a medi cal lien or silent lien I would be unaware of? 

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