Property taxes may seem like an unpleasant fact of life for homeowners, but they are used for items like public education, streets, hospitals, courts, voting, and so on. They are a necessary part of American life. However, depending on the value of a property, taxes can be quite expensive and, for some, difficult to pay. In fact, the average US property tax bill in 2020 was over $3700. In states like New Jersey, homeowners can easily pay triple that amount.
Different states and counties have different property tax due dates, but they all expect on-time payment. If you cannot pay your property taxes within a certain time period, a government entity, including your county court system, can place a lien on your property and/or sell it to recoup back taxes.
While this process is traumatic for distressed homeowners, savvy property buyers can find unbelievable deals on these homes. You can often buy a valuable home for pennies on the dollar, especially if you are willing to renovate. If you are looking for an investment property or need a home but have limited funds, searching for a tax sale can be a wise financial choice.
Types of Tax Sales
The two main types of tax sales are a tax deed sale and a tax lien sale.
Tax Deed Sale
A tax deed sale offers the actual property to the highest bidder and is the fastest way to acquire a delinquent property. If you buy one of these homes, you are buying any unpaid tax debts as well. These sales are sometimes held in person, but many now take place online. Getting a “good” property can mean competing with many other bidders.
For some properties, the minimum bid will be the amount of the taxes owed plus interest and any other costs associated with the sales. These low minimum bids are most often associated with less desirable properties that are not expected to attract many bidders. Some may have failed to garner any bids when they were first put up for auction. Other tax sale properties can go as high as 80 percent of the “forced sale” of the property less any tax liens. The highest bidder wins the property.
Only the amount of the back taxes, penalties, and interest is given to the county or state. Any money over that amount goes to the home’s original owner. So if you win the home with a bid of $35,000 but the amount owed to the government is $5000, $30,000 would go to the original owner. You will then most likely receive a quitclaim deed. This is a fast and clean deed that removes the interest of anyone else in the property and protects you from later legal challenges.
If you do have the highest bid, you will have little time to make your payment. You may get two or three days to pay, or you may have to deliver the money almost immediately. It’s essential that you have the financing in place before you make your bid. Otherwise, you will lose the property and someone else will be allowed to purchase it. You will also lose any auction fees that you may have paid.
Tax Lien Sale
The second type of tax sale is the tax lien sale. When a government entity places a tax lien against a property, the owner cannot sell the property or refinance it until the amount of the lien is paid off. The government will get its taxes one way or the other.
In these sales, you are not buying the property outright. Instead, you are purchasing the right to collect the unpaid real estate taxes from the property owner. If you successfully purchase a tax lien, you will receive a certificate after the sale. To keep their home, the property owner must pay you the back taxes, penalties, and interest. If they fail to do so, you can then foreclose on the property so that you can get the title and become the owner.
However, most of these sales give the property owner a redemption period that may extend for several years. Acquiring a property this way can be a time-consuming effort. Ultimately, you may not get the title because the owner comes up with the necessary cash. Most areas give the homeowner multiple opportunities to pay their delinquent balances.
Tax lien sales are less common than tax deed sales. Only some states allow them, including Alabama, Illinois, Iowa, and Missouri. Some property investors actively pursue tax liens as a great way to ultimately make a profit.
Where to Find a Delinquent Properties
Of course, local real estate agents are a good resource for the status of all local properties, but for the most accurate information, you should turn to the local government. You can acquire a list of tax delinquent properties by contacting your county tax assessor by phone or in person. Many counties also post these properties online along with basic information such as the address of the property, the minimum bid necessary, and the date of the sale. You can also find these properties by visiting property databases and searching for potential foreclosures.
Practice Due Diligence
Before bidding for one of these properties, you will want to gather as much information on the home as possible. You will want to check with some of the following: the local tax assessor, county clerk, title companies, online databases, and local real estate agents. Just because you can get the home for next to nothing doesn’t mean that you should. You need to thoroughly investigate so that you know the drawbacks associated with the property. Using a database like ProspectNowcan help you learn many details about a specific property.
The Prospect Now Advantage
If you want to buy a home by paying its back taxes, you can benefit from the extensive property databases of ProspectNow. Since 2008, we have been a trusted resource for those in the real estate industry as well as individuals looking for a property. Our website offers in-depth information on over 100 million residential properties and 42 million commercial ones.
By using ProspectNow, you can easily research tax-delinquent and other properties, which helps you make smart decisions about your property bids. The more you know about these bargains, the less likely you are to have buyer’s remorse if you are successful during an auction.
With ProspectNow, you can easily retrieve reliable data on millions of properties, including those with unpaid back taxes. Contact us now for a free trial and access to accurate information.
Final Thoughts
If participating in a tax sale gives you pause, it shouldn’t. You may well feel sympathy for owners of tax-delinquent properties, but remember, most have had several years to bring their taxes current. Also, many government entities give these owners a redemption period after a tax deed sale or a tax lien sale. Someone will benefit from these sales. It should be you!