Quote:
Originally Posted by LigLury
I'm having a really hard time finding out the answer to a couple of questions I have about delinquent taxes and tax sales. I would think this falls under " Ask me about real estate investing". I don't know if it's because these questions are too dumb and people don't want to answer, or if it's because the answers are not at all clear.
Basically, if a property is delinquent for $15k in back taxes and the country holds a tax sale what exactly is being sold? Is it the taxes only? Or is it the entire property?
So now say someone places a winning bid of $50k. Assuming the answer to the first question was that it's the entire property - It's my understanding that the county is not entitled to keep the entire $35k above and beyond the tax amount owed. So what happens to the $35k? Who gets it? Does it go to the last holder of the deed before the sale?
Obviously any mortgages/liens on the property would muddy up the answer, so assume there is no mortgage on the property. I've even called my county assessor's office and they were unsure and acted like I was nuts. Maybe I'm just being stupid, but I think this is a perfectly legitimate question. Yet I cannot find anyone willing to provide an answer. I'd really appreciate it if anyone here can clarify this for me.
Every state has different rules. States typically have either tax liens or tax deeds. Some use a hybrid approach. Where are you at?
I was looking into this, so I'll quickly describe the process for Florida. The process in your state may be nothing like this. If the owner does not pay his property taxes (let's assume that the taxes are $1000):
1. The county auctions off that $1000 in debt. The way this happens in Fl is that the auction starts at 18% interest. If you want to bid on the debt, you bid the percentages down. So, you have to bid below 18%. The lowest bidder gets the percent interest that they won the bid, with a minimum of 5%. We'll call the winner of this Bidder A.
2. The winning bidder pays the $1000 for taxes to the county.
3. If the property owner wants to pay the taxes, they pay the $1000 plus the interest, and it is given to the person who purchased the debt.
4. If the property owner does not pay the debt, then the next year the property taxes are going to be auctioned off again (I'm still assuming that the owner can't pay this years taxes since he hasn't paid last year yet). The auction occurs just like in #1. It does not have to be auctioned to the same person. We'll call the winner of this Bidder B.
5. The property owner still has one more year to pay off both years of property tax plus interest. If they pay it off in that time, then they keep their property.
6. If the owner does not pay in the time (two years since the first tax sale), then the Bidder A can begin proceeding to foreclose. I'm not going into the details here, but they first have to pay off Bidder B. Then, they can begin foreclosure.
7. The house will be auctioned off.
8. If the auction price does not cover the expenses plus interest Bidder A has paid out, Bidder A will receive the house free and clear.
9. If the auction price closes higher than those expenses, then Bidder A gets his expenses plus interest. The auction winner gets the house free and clear.
10. I believe the remainder of the auction price goes to the other lien holders, not the county.
Don't look at the 18% in #1 and think this is easy money. In the bigger counties, you are bidding against a lot of institutional investors who who bid it all the way down to 0.25% because they know 5% is the minimum. There are other things that you have to watch out for. You could bid for the taxes on a property and have noone bid against you. Then you look at the map and see that the property is 800ft by 10ft and useless without also owning the property around it. Noone has paid the taxes on it because they don't want the property. You could win the auction but get such a low rate of return that it is not worth it.
I decided not to pursue it, but I'm not trying to discourage anyone. Just do your research first. And, this was a simple example for Florida. Wherever you are at will most likely operate differently.