Tax Deeds in Texas

[Lorilyn B.]

Hi all, this forum has been very informative so far and has put a few of the pieces together for me. However, I am in need of some clarification. (I hope we aren't limited on the length of posts :) )

My questions are specifically for Texas. From what I understand a tax deed sold by the county is basically a foreclosure? I was under the impression that the county is the first lien holder so when a tax deed is sold it wipes out all other liens. (I understand that municipalities and other taxing entities exist along side of the county, but it is my impression that they usually lump them together.) Yet I have run into people saying that you have to make sure there isn't a lien on the property. If a person files as bankrupt do you lose all of your investment? Also, what is the recommended ratio between how much you pay for the deed and the property value?

I could keep going but I think this is good for now.

Thanks,

Lyn

[Josh James]

Lyn,

Great questions, and most of the answers are not simple ones. I am not an attorney, but I am an experienced tax deed investor here in Texas. Yes the auction is similar to foreclosure. You get possession rights, along with all other rights to the property after you purchase, with the exception of the right of redemption.

The county is not first lien holder. They are a superior type of lein in Texas. Their foreclosure will only extinguish liens that have been addressed in the tax foreclosure suit. Also there are liens that cannot be extinguished by the sale becase other government offices are superior to the county and other local taxing authorities. Some examples are federal tax liens, state child support liens, and epa liens. Do yo see the pattern there? All of those are higher authority government offices. The types of liens that are extinguished, if the lienholder is properly notified in the tax suit, include corporate liens like mortgages, and individual leins like a mechanics lien. Do you see the pattern there too? 

A bankruptcy can absolutely put a wrench in your plans. I have a friend who went through 5 years of that after he purchased one. He did not lose his ivnestment, bt he did become a party to the bankruptcy.

Now, for your last question, what you pay is up to you. It greatly depends on the property condition. Obviously you wouldn't pay a high price for a house that is unfinished on the inside. I have seen these from builders that walked away from a house. So condition plays a large role in your bid. Also keep in mind most of these properties have been sitting for years while back taxes accumulate, and then must go through the court and be auctioned. This usually means a lot of time spent vacant, and a lot of damage.