Title Insurance on Tax Sale property

[Kyle Stratton]

I acquired a house by a Sheriff's Deed at a tax sale for unpaid taxes here in Texas.  It was not a homestead, which limits the redemption period to 6 months.  As a homestead in Texas it is 24 month redemption period.

QUESTION:  At what point will a title insurance company issue a title policy?  In other words, to sale the house and to have an owner's title policy, and a mortgagee's title policy (if buyer has mortgage financing) issued would require what kind of elapsed time frame by a title insurance company?

Thoughts?  Answers?

[Kyle Leinart]

Hi Kyle, Kyle here. I am from Texas and invest in quite a few tax sales. If the property was not homesteaded at the time of judgment you are correct, it is a six-month redemption, however title policy companies will avoid these like the plague for two years. A bank simply will not loan on these properties because nobody can get title insurance for them for atliest 2 years. Also I am assuming that you did your due diligence and there are no federal IRS tax liens, child-support liens, hospital liens. Those puppies do not drop off the tax sale.  

If you sell to a cash buyer and they don't require a title policy then you're all good, but that would be a slim chance. At this point you're pretty much stuck with renting the property out, holding it in inventory for 6 mos or going to the original owner, and giving them a few bucks to sign over the redemption rights to you. That's kind of a tricky situation. keep in mind that redemption period starts from the day The deed is actually filed With the county, sometimes it takes 4 to 6 weeks just to get the deed in your possession before you can even file it.

Also, in Texas they do have the right to redeem within six months, and if you over improve the property or do extensive  remodeling,  and they come back to redeem the property you could lose big bucks on a lot of the money that you put into the rehab. The Texas laws are A little vague but basically they say that if you have to make an improvement in order to protect the integrity of the house they have to pay you the whatever you paid at the auction plus whatever you had to do to make reasonable improvements to protect the integrity of the house plus a 25% penalty within 6 mos. what they mean by protecting the integrity of the house, if the windows are busted out and the roof is leaking, and the doors kicked in , you have the right to pay for the materials and labor in order to fix the house so it does not further deteriorate. Putting a new kitchen and granite countertops is probably not going to count. 

The reality of the situation is that people rarely ever redeem. I've personally never had somebody redeem on me, but it doesn't mean that I don't minimize my own personal risk by waiting out these redemption periods or going other routes. Tax sale  investing is a very cash intensive business.

If you don't have the stomach to wait two years to get title insurance and your goal is not to rent out long-term, there is the option recommended by Rick and John. Tax title Services. Just look them up. They do title curative services, and once they cure the title they will submit it to their own companies for title insurance. Basically they should be able to cure it within 2 to 6 months, but don't quote me on that, you need to call them. I've dealt with them a few years back and I was successful with their service.

 The other option is to hire an attorney and go through with  suit for quiet title .  Typically this is a longer process and costs more, maybe not necessarily in all circumstances .