Navigating a Tax Sale: Part 1

I am taking a break from my journey to talk a little bit about tax sales. I heard about tax sales a while ago from someone who was selling their house for sale by owner had acquired it from a tax sale but knew nothing about the process and did not necessarily want to know to be completely honest. 

This changed a few months ago when my friend who is a real estate attorney peaked my interest in how the process works and how there might be some opportunity being able to buy a house for just the owed taxes and what scares most people away are the lengthy redemption periods and navigating the deed and foreclosure process once the redemption period has ended. I figured we had a decent competitive advantage with our real estate knowledge and law knowledge. 

Essentially the tax sale is the counties way of getting their property taxes for each property. When someone does not pay their property taxes the city will auction off the right to the tax lien to bidders. This usually happens once a year in June for all delinquent properties. There is a lengthy redemption period for the owners of the property to pay the taxes plus interest and if they do not do so in that time the owner of the lien has the right to foreclose on the property. Typically these properties are paid-off properties as must banks will create an escrow account for taxes.

I set out to learn more and of course my first step was Biggerpockets. I posted on the forums and got many great responses of people that have done them in the past and how the procedures work. What I found was each county is very different in how they organize their tax sale. 

In some counties bidders are allowed to bid online which attracts many institutional investors looking for undervalued real estate in their portfolio. Other counties everything must be done in person on the day of the tax sale. I researched the county I lived in and found that it was in-fact a county that required an in-person presence to bid which I figured was good for us. 

Another interesting thing some counties do is they will sell partial interest in a property all the way down to 1% interest in a property. Basically bidders bid on the property and instead of bidding up the price of what they will pay they bid down the amount of ownership they will take for the given price of back-taxes. This is because the house can only be sold for what the tax bill is. As you can imagine this can be a legal nightmare trying to parse what you owe and force a sale when or if the property becomes yours so I was hoping to steer clear of that. Luckily for me our county does not do this procedure. 

Someone reached out to me from Biggerpockets who actually had done the tax sale in my county before so I was happy to meet up with him. We talked for awhile about a lot of things but the biggest pieces of advice he had were:

1) Have access to a lot of cash on day of the sale. The bidding and properties will be randomized so you could get a 30k tax bill come up on your number or a 100 one so its nice to be ready for all

2) You can pass on properties but be ready to cast a wide net. There are many institutional investors who hire people to do their bidding the day of the sale so if your number comes up it is best to take the property if you can.

I was very happy to learn this and took the info to my friends who were interested in going to the sale. 

Stay tuned to part 2 where I talk about the bidding and registration procedures and what happens after you get the property!