Texas Tax Sale Newbie Questions

[Scott Pigman]

I'm trying to understand how tax sales work in Texas to see if it's something I want to pursue further. I'll appreciate corrections or confirmations on the things I think I know and answers to the things I don't.

I understand that in Texas you're bidding on the property itself, not a lien on the property. If you win the auction, you own the property, but during the redemption period of six months to two years, the former owner has the right to buy it back from you for your purchase price plus some percentage.

Questions and Concerns

What happens to the original tax bill? Is that cleared when you win the auction or do you now have to pay that on top of your winning bid?

What happens to other liens, like a mortgage?

Does the county evict the previous owners before the sale or could they still be living there? I'd expect them to not be too happy about losing their property.

What rights do you have during the redemption period? It seem that everything you might want to do during that time has a big asterisk next to it, "subject to the original owners not taking back the property."

So the upsides are that you either make a good return on your money or you end up owning the property outright. Right?

The downsides... You overpay, either because you didn't research it well or you let another bidder run your bid up. Previous owners damage the property. You have to tie up your cash until the property's redeemed or you can cash-out refinance. You're responsible for other liens? Anything else I'm missing?

Thank you,

Scott

[Rick H.]

I'm not a "Texas tax sale" investor however I can offer some general thoughts to ponder that apply to most every foreclosure-type auction.

The purpose of the foreclosure is, in its basic element, to provide a means to force a sale and liquidation of an asset, in this case, defaulted property taxes owed for a certain period of time. 

Most defaulted tax foreclosures result in the elimination of junior liens, that is, property taxes are senior in claim and both voluntary liens like mortgages and trusts deeds (signed by record owners) and involuntary liens like judgments are wiped off title (but may, in fact remain as a debt of the foreclosed out former owner). 

Any debts to the Federal government typically remain, subject to a redemption period. Because property taxes are county-related, there may be other agency liens that have a super-priority to other voluntary and involuntary liens, but which remain if not part of the property taxes. In my state, CA, some of these might be related to water districts and similar agencies.

There's certainly a lot to know. Again in my state, we have three different types of property taxes that I know of (assessed, supplemental and escaped). Each are specific to time and events that trigger them. Avoiding reassessment, hence major tax hikes, is big business in California.

An online search deep into the bowels of your state's website(s) will probably reveal the Texas state tax codes, maybe even a policy manual that you download. That would be your rule book for creating a checklist of items to subject each of your deals to. I hope you follow through, become a successful expert, and find a way to share your knowledge with others who are serious investors.