Tax sales can provide an opportunity for smart property investments, but investors should carefully consider the complexities of buying property at tax sales.
How Can I Find Investment Properties at Tax Sales?
When a property owner fails to pay taxes, a real estate tax lien is placed on the property, which is then put up for sale to ensure either payment for foreclosure. Listings of properties available for sale at auction are public information, as Washington, DC law requires that notice of the sale must be published in at least two general circulation newspapers at least thirty days after the final notice of delinquency has been sent. Investors can find the amount of the tax levy, how the tax must be paid, and the date of the tax sale in the notice.
How Do I Bid on Investment Properties at Tax Sales?
The minimum price of a property at a tax sale is determined by the sum of the taxes, penalties, and costs owed by the current owner. Property investors must have at least 20 percent of the purchase price on deposit before making a bid. After a bid is successfully made, the full purchase price must be paid within five business days of the final day of the tax sale, and if it is not, 20 percent of the deposit, as well as the property, is forfeited.
When a property owner makes a successful bid, a certificate of sale will be provided by the Office of Tax and Revenue. This certificate of sale is evidence that the tax sale proceeding is valid, and the new purchaser can continue on to foreclosure.
How do I successfully execute a foreclosure and take possession of my investment property?
Most investors want to move quickly to foreclose on a real estate tax lien immediately after the purchase, but there are critical steps that must be carefully followed.
Investors should know that buying a property at a tax sale means you have a certificate of sale, but you do not yet have the title to the property. The title is held in order to give the original owners who were delinquent on their taxes six months to redeem their debt. Redemption is possible if the owners pay the investor the amount paid at sale plus 18 percent interest per annum. The redeemer must also pay in full the taxes and interest owed through the date of redemption, as well as reimburse the purchaser's attorney's fees for up to four months after the sale.
If redemption does not happen, the purchaser has six months after the redemption period ends to apply for a tax deed. Under the Tax Clarity Act of 2000, tax deeds cannot be issued until the redemption period has passed and the purchaser has foreclosed the owner's (or any other lienholders) right to redemption.
What steps will I take to foreclose?
In order to foreclose, a complaint to foreclose must be filed. Individuals with an interest in the property must be listed on the complaint as defendants, including ,but not limited to, the record titleholder, the real property and legal titleholder, the record of life tenant, the owner of the possessory interest, any mortgagee, the trustee of record, and the District of Columbia. Written notice to those with interest not named as defendants, the Home Owners Association, and all commercial tenants must be given as well; notice should additionally be posted on the property. The District of Columbia further requires that the purchaser obtain an order of publication to be distributed to the defendants and advertised in a publication. A lis pendens must also be filed within 30 days with the Recorder of Deeds after the opening of a foreclosure suit.
The final judgment foreclosing the right to redemption will have the mayor execute and send the deed to the purchaser, providing them with a fee simple title. Failure to pay the full taxes owed on the property or record the tax deed within thirty days of the final judgment will result in the judgment being vacated. Barring that, the judgment will not be reopened unless a lack of jurisdiction or fraud are found.
How do I get the most out of my investment property purchased at a tax sale?
If this all sounds complicated, it is, and it's always a good idea to contact a licensed attorney in your area with a specialty in real estate law and experience in foreclosures and tax liens who can assist you and advocate for your interests throughout the process of purchasing an investment property at a tax sale.