Some of the detail missing on infomercials - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on March 07, 2003 at 21:28:29:
Rob-----------------
You might want to do an archive search on the topic. It has been discussed some in the past.
There is no catch. Why do you think we smart investors buy our houses at county tax sales and tax resales?
Usually there are no mortgages, otherwise, the lenders would pay the delinquent taxes and demand repayment from the owners. Then they would foreclose on the mortgage if they were not reinbursed. Sometimes you will see a property sell and the lender not protect their position. I remember one where there was only a few hundred dollars owed on a very old loan and the private party note holder was not planning to do anything about it. I have bought a couple of houses on the OK tax resales where I was told that there was a large loan against each of the properties. I don’t bother to look for loans before buying.
In many states the lender can get paid out of “excess proceeds” the purchase money over and above the amount owed on the delinquent taxes. If the loan is small they may be made whole, if large, they get part of their money. The owner is last in line after obligations which are junior to the tax lien. Which is virtually everything.
In a few state the lenders do not get wiped off the property. I have heard that this is so for NM and ME.
In many juridictions getting merchantable title may be a pain. You should check with the title companies about their willingness to offer title insurance to your buyers when you resell your tax sale purchases. In some places you will have to do a quiet title lawsuit. Then, when you have cleaned up your title and shown that there is nothing wrong with it, the title insurance companies will agree to insure your title. Thanks Guys.
I have not heard of a state where you can get title insurance right away on a property bought at tax auction. But I have only bought properties at tax auctions in five states: CA, WA, NV, TX, and OK.
Also, there are, in apparently many states, some liens which will not get wiped off the property by the tax sale, so you will be obligated for it. Besides what I said about NM and ME above, here in CA 1911 and 1915 act improvement bonds remain on the property, as well as the IRS liens (which remain on in all states) for 120 days, allowing the IRS time to redeem the property by paying your purchase price to you plus interest at 6%/annum. Also, other federal liens than the IRS remain for 1 year on properties–this could be a judgment against the owner out of chancellory court, for instance.
In AZ and OK state liens are not wiped off the property by the tax auction. And this might be so in other states. Every state has different laws. You need to study the laws regarding the collection of delinquent taxes for any state in which you plan to invest.
Here in CA, a dedication of a road to the county which has not been accepted by the county remains as a burden upon the property. This might make a vacant lot unbuildable. Also, any easements remain on the property. I saw a property next to an apartment house scheduled for a tax sale in Sacramento a few years ago. There was an easement over the lot held by the owner of the apartment house. The renters parked their cars on the lot. It would have been impossible to build upon that property if it had gone to sale. The owner redeemed before the foreclosure.
Over 90% of the properties I have seen go to tax auction are vacant lots and vacant land. Something like 1/3 or more of the “improved” properties are down and dirty dogs, requiring huge infusions of cash to make them useable–or the gentle nudging of a bulldozer.
Many of the vacant parcels also will problem properties. Small, underwater, steep, roads, contaminated, no utilities, way out in the boonies, etc. In other words, not easily sellable for a high price. In fact, a lot of property owners are smart to stop paying the properties allow the tax collector/treasurer to sell their properties that way. Many are worthless. I remember three parcels in Menlo Park, CA, which is just north of Palo Alto, on the San Fran Peninsula which were in the tax sale one year. In nice, middle class housing were 12 foot X 12 foot squares. One was in the backyard of a house, including overlapping partly with the swimming pool. The other two were in the front of the houses, being across the property line between two houses with 1/2 notching out part of one house lot and 1/2 notching out part of the other house lot.
In Arkansas I was told about tax sales properties where there were two different county assessment or parcel numbers for the same land. A farmer had a large parcel and several people thought that they owned some small parts of the land. Those small parts showed up on the tax auction.
So, you need to do your due diligence before you buy properties at county tax sales. If you want to invest in the tax lien certificates for the interest rate or penalty return you don’t need to do nearly as much work when buying. Even a beginner can do that with ease, in my opinion. Even there, I’d recommend looking at every property upon which one planned to bid for the tax lien. After all, you wouldn’t want to get a lien on the oddball properties such as I have mentioned earlier, or on those contaminated with toxic waste. In rural area, manufactures of illegal drugs may dump barrels of waste chemicals from there operations. Where? On their own properties? How about on some bare land which is scheduled for a tax sale next month?
Do the properties get bid up? What do you think? Are you the only person in the USA who is looking for a bargain price on good real estate? Now, on this issue I can not predict that every property will get bid up to the point where you will not want to buy it. But some will.
Which properties get bid up the most? There are a lot of people with a few hundred or a few thousand dollars to buy the tax sales properties. The lower the initial price, the higher the percent of that beginning bid is the final selling price, on average. People will bid up $250 lots to $500 or more. However, a $25K-bid property typically will get bid up by less than 50% of the opening bid. No guarantee here, but there is a distinct tendancy for lower-bid properties to have the final offer raised high.
Here in CA, decent houses typically sell for 60-75% of market value, in my observation. If you get one for less than 50% of market value, you are doing well. There are some excellent vacant parcels that sell for bargain or super-bargain prices, especially the higher-priced ones. You may also pick up a smaller parcel or a lot for a steal, if there is not much interest in that property for some reason.
Have I answered your questions? If not, ask some more.
Good Investing**Ron Starr