Robin Carriger wrote:
Thanks for the link, Shawn. I've added to our Helpful Links page.
We have discussed tax sales at Nubys meetings in the past, and there are some Nubys Group regulars who have bought property at those auctions. Personally, I don't really like auctions of any kind when I'm one of the potential buyers, so I haven't been to a delinquent tax sale, but I've discussed it with other local investors who have. It's important to note that owners of properties sold at these sales have redemption rights. Owner occupants have a 2 year right of redemption, and non-owner occupants have a 6 month right of redemption. It can still be profitable, and there's a little more to the story, but my memory of those details is foggy. I want to say that if a former owner wants to exercise their right of redemption within their legal time period to do so, they not only have to pay the back taxes, but they have to pay you, the guy who bought the property at the delinquent tax sale, a 25% fee as well. I would look to someone with more than a "hear say" understanding like mine to confirm this.
You're welcome, of course, Robin. Whatever I can do to help.
I've done a bit of reading on the tax sales, and the most recent was from the MSI
book I mentioned. According to Mr. Allen and his interviewee, only 3% of investors ever actually get to the point of foreclosing on properties. The attraction is actually the state-guaranteed interest (up to 25% in Texas) earned on the deed. Therefore, the 2-year redemption period can actually work to the investor's advantage.
Allen and his friend also warned against bidding on a deed whose value was greater than the property on which it was owed, of course. They also mentioned that part of the reason that so few of the investors ever end up foreclosing is that junior lien holders will often step in and pay the back taxes (and the penalty) to protect their own interest in the property. The tax deed is senior to all other liens, including the mortgage, so the bank's not going to forfeit their $200K stake for a few hundred bucks in back taxes.
Since the main thrust of investing in tax deeds is actually the interest paid (despite what most late-night gurus preach), perhaps this topic is not really one for real estate investors. It's real estate-related, I suppose, but so are some mutual funds. Still, I wanted to let folks who were interested know where they could go to find out more about the bidding process.