Tax Sale: Burden to Some, Boon to Others

In the past few years, America’s economy has struggled. Homeowners have especially felt this free-fall, as home values have plummeted and the unemployment rate has risen just as fast. So what happens when these homeowners walk away from their property to start over somewhere else? A quick look around the neighborhoods of metropolitan areas will show you that many people have just packed up their things and left their home and their property.

When a homeowner becomes delinquent on his property taxes, the bank that owns the home must find a way to recoup the costs associated with that property. One way that they accomplish this is through a tax sale. These types of transactions can focus on either the lien on the property or the deed to the property.

In a tax lien sale, the bank auctions off the delinquent balance of the taxes on the property. Investors pay off the lien and then have to wait an appointed amount of time before beginning foreclosure proceedings on the property. This type of transaction is a boon for investors, as they can often acquire property for a small investment. The homeowner does have the opportunity to still pay the delinquent taxes plus other costs incurred due to the foreclosure proceedings.

Once foreclosure proceedings begin, the investor may acquire the deed to the property or the deed may go to a tax deed sale. In this case the investor would have the right to have the first bid on the deed. The minimum bid at a tax deed sale is usually the unpaid taxes and interest, as well as costs incurred due to the foreclosure.

Going through the process of losing your home and seeing it sold at a tax sale can be disheartening. Sometimes homeowners are unable to pay due to loss of work or unforeseen financial difficulty. In this case, it is advisable to try to stay current with the taxes to avoid the risk of losing your home.

Unfortunately, some people willfully choose to not honor their agreement to make timely payments and allow the taxes to go unpaid, even though they are able to pay them. While they would still have the same rights as other homeowners, some have argued that they should pay stiffer penalties for just walking away from the property.

If you find yourself in the place to invest in these types of properties, there are a few pitfalls to avoid when buying property from a tax sale. First, you usually have only a few days to make the payment on the delinquent taxes. Failure to do so will forfeit the transaction and you may lose your money. Additionally, you can be prevented or barred from participating in other tax sales.

Next, you cannot inspect the properties that are listed as part of the sale. You must purchase them “sight unseen.” If you are familiar with the area, you may have an idea of what you are getting. However, if you are not privy to information about the neighborhood or subdivision, you might be making a poor investment that cannot be retracted once finished.