Tax Deeds

Under the tax deed sale method, the property itself is sold. At the sale, the minimum bid is generally the amount of back taxes owed plus interest, as well as costs associated with selling the property. In the event the property is not purchased, title may revert to the governmental entity that offered the property for sale. Title is generally transferred in a tax deed sale through a form of limited warranty or quitclaim deed (sometimes styled as Tax Deed or Sheriff's Deed); the purchaser would most likely then need to initiate a quiet title action in order to resell the property later (as a quitclaim deed is generally insufficient to acquire title insurance). However, the property can be sold from one investor to another by cash or owner financing using a limited warranty or quitclaim deed.

Some jurisdictions allow for a post-sale "redemption period," whereby the former owner has a specified amount of time to reclaim the property by repaying the amount bid at auction plus a penalty. For example, Texas allows a 6-month (for non-homestead, non-agricultural properties) or two-year period (homestead or agricultural properties), with a flat 25% penalty to be added to the amount paid at the sale (50% after the first year), while Tennessee allows a full year, with a 10% penalty. As such, purchasers of properties at tax deed sales are cautioned not to make major improvements on the property until after the redemption period has expired, as such improvements would then become the property of the original owner.

A tax deed sale may also be used in conjunction with a tax lien sale process, whereby the lien holder (instead of a governmental agency) starts the process toward forcing a public sale of the property. In those instances the lien holder's investment (the price of the lien plus any additional costs necessary to start the tax deed sale process, such as required fees and payment of any still-unpaid taxes or buyout of other certificate holders' interests) constitutes the minimum bid; if no other bids are received at the sale then the lien holder will take title to the property subject to redemption periods (if applicable) or any lawsuit to overturn the sale.

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