How do you prepare for a property tax sale? (Tax Liens)

Question

I needed to take a little break. I have been spending hours preparing for a tax sale that will be held this Wednesday. I was wondering how does everyone else prepare?

I wait till the last notice has been published giving the updated list of properties for the tax sale. This typically gives me 2-3 weeks, however this time the notice ran late and I have been cramming since last Friday.

1. First step, I read the list of properties and remove the obvious properties that do not fit my investment strategy.

2. I do a quick title search on every property.  I can use that to identify which properties I am interested in and which ones to avoid.

3. I have my real estate license so I check each property in the mls to review it's history.

4. I use google my maps to pin each location on the map and do an initial street view look.

(Each step above I am making my list smaller.)

5. Next, once I have filtered it to this point then I drive by each property and take a current photo and add it to google my maps. Make observations about the condition of the home. Look to see if there is electricity to the house, any notices on the door, etc.

6. I only bid in areas where I am familiar with the neighborhoods and property values, but I do check the MLS for new data from comps over the last year.

7. Lastly, I then evaluate each property and make a list of the ones I would like to bid on.

How do you prepare, any suggestions on what I may have missed? My process has evolved over the last 10+ years. It is a lot of work, but I avoid stupid mistakes that I made when I was first starting off.

Will Sifert · Answer

Sounds similar to what I do.  I use to shy away from the ones that were real bad. I got this house one time, it was gutted to the studs, owner started to do a few improvements but passed away. His heirs paid the taxes for a few years and kept up with the outside, then just stopped paying. I had to pay for some debris to be removed and to keep up with the grass being cut. Neighbors complained about the trees and weeds  that were getting out of hand. It cost some money getting everything done to keep the neighbors at bay.  I was about 8K in when the redemption period expired. I was really worried it would be a tear down and the value of the land was only 20K. After cost of demo, I was going to lose money plus I still had the legal costs to do the suit to quiet title. I really really tried to get the owner to respond back to me in hopes they would redeem so I could get my taxes and interest back. They did not. I quieted title and sold it for 40K. Once I pulled comps from a few other "poor condition" similar fixer upper properties that sold, I was shocked to see what they were going for.  I had it listed and it sold. I did go through a few buyers because of how hard it was to get someone to write title insurance but ultimately it sold. Now I never under estimate the houses in poor shape. I'll take deals like that all day long. It can get a little risky, if it is too bad off and it ends up being demolished you want to make sure the land values are enough that you wont take too big of a hit.

Peter Walther · Answer

If it's so easy to do a title search, and you didn't mention the title exam which can be the tougher part, why did I spend thirty years handling title claims based on defective searches and exams?

Let me give you just one small example.  A owns 160 acres of property. He sells 40 acres to a buyer B.  The deed is drafted describing the property being conveyed as the SW 1/4 of the NW 1/4 of Sec 1 Twp 23 Rgn 12 together with an 50' road and utility easement through my remaining property.  A then conveys out the NW of the NW to C; the NE of the NW to D and the SE of the NW to E.  All those deeds are made subject to and together with easements of record.

If all you do is run A's name you're probably not going to find the easement since there is no document of record that is going to identified as an easement.

One more quick one.  A conveys property to B.  In the body of the deed, down below the legal description, there's an asterisk next to which it says "A hereby retains a life estate".  I can't tell you how many times I've worked on claims where the reservation was missed.

Will Sifert · Answer

My comments " Generally it just takes a few minutes to do a quick review to see if there are any red flags. Right before the redemption period expires I make sure to do a thorough title search and send out the last set of noticing before the redemption period expires. "

I don't do a full blown abstract and I don't have an attorney do a title exam. I do a quick look. If it looks complicated, I honestly skip it. If I see red flags jump out, I skip it. I don't pretend to catch everything in my quick review. But I can tell you that I catch at least 95% more than someone who doesn't look at all and this has enabled me to avoid a lot of properties with title issues. My objective is to weed out as many problem properties from my bidding list as possible.  I've paid for abstracts before on properties that did not get redeemed and were too complicated for me, I see how much work goes into it.  On other properties that weren't difficult my results matched that of what the title insurance company found. Again, as I stated I am just doing a quick title search which after doing hundreds of them I don't find is very hard to do. I have missed stuff over the years and learned from it, more so when I was starting off. But I have also avoided a lot of problem properties that have saved me a lot of money.

John Underwood · Answer

I do similar to you but I do not look at titles. The tax deed wipes out most everything as long as the county notifies a lien holder or mortgage company. The IRS doesn't typically go after sub 100k properties so I can wait out the rest of the 10 years on those.

I have have even bought a Life Estate property with no issues so far. I might do a Quiet Title on this one to clean up the title.

Joe Martella · Answer

@Will Sifert  Are you investing in tax deeds or tax liens?  Out of curiosity, how many hours are you putting in, how many bids are successful and what is your profit to hour rate (how much profit per hour of time are you making)? What about the time to track?   All that work makes it seem not too profitable.

I don't do half that work, but the returns aren't the greatest either.  I am making 15% - 35% on my money invested.  Obviously, to make 35% you have to hold the lien for a couple of years.

Peter Walther · Answer

The main reason to search and exam the title is to ensure everyone who has an interest in the property has been provided notice of the sale.  Without notice the interest isn't extinguished.

My understanding of a life estate is that the interest is extinguished when the original life tenant dies.  What theory do you intend on presenting to the court to get it to quiet the title against the interest of the remainderman(s)?

Will Sifert · Answer

The suit to quiet title is a legal procedure to legally make you the owner of the property. It legally removes everyone (who you have included in the suit) from having an ownership interest in the property. By law you can now sell the property. You don’t need title insurance to sell a property. However 99% of buyers won’t buy with out having a title insurance policy and you won’t be able to get a mortgage with out one.

Title insurance companies have their own set of standards when it comes to writing title insurance. Because there have been some cases over the years where  people have sued after a quiet title suit and won, costing title insurance companies, most title ins companies have stayed away from tax sale properties all together. It represents a very small amount of their business but was a high percentage of their claims.

Some still write the policy but they may want you to wait a certain period of time after the quiet title date before writing. Others will write if the pre tax sale notice was signed (most are not). Others will want to do their own extensive noticing or get a quit claim from the previous owner before writing.

When you have a suit to quiet title you can win just by not having anyone oppose (or not be found to oppose). That is usually not good enough for title insurance companies.

Sophie Wang · Answer

You are right, if the land value is more than lien cost plus fees to foreclose plus quiet title action, it is probably safe to bid on it knowing at least all cost will be recouped. But just curious, why was it still hard to get title insurance on the property you mentioned, after you had already done the quiet title action? I thought quiet title action should have cleared the title?

Will Sifert · Answer

It really isn't that hard to do a title search on a person / property. Unless it is someone who buys and sells lots of properties it will only take a few minutes to look back to see what has been recorded (mortgages, liens, judgments, donations, judgment of possessions, etc.) The only other thing I look for is if the owner has passed away and if there are any obits I can find. Especially if they are older. If they have passed away then it takes a little time tracing down the heirs. In all most all cases the local municipality will not catch that the owner is deceased  if there hasn't been a succession filed. A decent amount of properties that go to tax sale are from people passing away. Generally it just takes a few minutes to do a quick review to see if there are any red flags. Right before the redemption period expires I make sure to do a thorough title search and send out the last set of noticing before the redemption period expires. All of this is to satisfy title insurance companies. They will do their own abstracts before they issue title ins, I want to hand them everything they need so there are no issues with them writing the policy. I like to sell once I acquire property so I can use the proceeds on the next tax sale, roll it all back in. I also acquire a lot of land, which just cost me money to hold on to and doesn't make income like rentals. I want to sell it as soon as possible.   Everyone's strategies are different and deal with differences based on their city / state.

Sophie Wang · Answer

Thanks for sharing your process @Will Sifert. I did not do title search before auctions, and I think I should incorporate that in my search. The counties I deal with usually have 2000+ items, and I am interested in the residential houses, so my first step is to eliminate non-residential, then look at the assessed value and eliminate the too highs ( which is more likely to redeem), and the too lows. Also in the driveby I eliminate the ones that have visible foundation issue/trees too close to house, and the ones look good. The ones have some deferred maintenance but not terribly bad seem to be in the sweet spot, they have a better chance not to be redeemed, also when you get the deed, they are not money pit to repair

How do you prepare for a property tax sale? (Tax Liens)

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