San Diego Tax Defaulted Property Auction

[Matt Burr]

I am interested in purchasing a house at a tax defaulted property auction and had a few questions.  

1)  In California the previous owner has up to a year to protest the auction.  It seems like from my research that this rarely happens and rarely gets the property back in court.   However I'm wondering if others purchasing properties at a tax defaulted auction worry about this?

2)  Do you guys purchase these properties with hard money?

3)  Do you wait a year to renovate the property (considering question #1)

4)  If you do wait a year and you use hard money to purchase the house, do you take out a traditional rehab loan at the end of year one or continue the hard money loan till the end of rehab (16-18 months total)?

5) Considering the risks of buying at an auction and not knowing the condition of the house do you guys set a max bid at 50% ARV? or some other benchmark?

Thanks!

[Max Gradowitz]

BEFORE the tax sale, there is a long right of redemption (5 years I think) for the owner to pay off the taxes owed and to cancel the tax sale.  AFTER the tax sale, the prior owner must go through a myriad of procedures to challenge it and they must have a legitimate reason to do so (like they actually paid all the taxes before the sale but the sale accidentally still went on, the sale was improper, etc).  Because of the very long process involved in the pre-sale, and the fact that post-sale challenges must have good cause, post-sale challenges rarely happen.

Also, at least with the tax sales I'm familiar with, you need a check in the amount you are willing to pay for that property on the day of the tax sale.  So everyone I know pays cash.  I suppose if you can get a hard money to lender to give you a check for the funds to deposit on the day of the sale, then you can use hard money.  I'm not sure if hard money lenders do that.  Everyone I know pays cash.

Disclosure: I have not bought at a tax sale personally, but I know people that have and that's what I'm basing my info on.  The laws are state-specific but each County handles tax sales so they all might do things slightly differently.