October 2003 "Tax Sales Properties - A Great Deal?"
PLANNING FOR WEALTH AND SECURITY
By attorneys Jennifer and Jeff Hawkins
TAX SALES PROPERTIES – A GREAT DEAL?
So, you have just bought a nice little house in the country for $1,500 at the county tax sale. “Wow!” You think. “I can’t believe I bought this property for next to nothing! What a deal!!!” Did you really get a great deal? Maybe…or maybe not.
A Southern Indiana tax sale buyer paid several hundred dollars for land in a tax sale last year and paid a “consultant” several hundred more dollars to help finish the purchase. The consultant misunderstood the tax sale law and failed to notify the prior owner about the tax sale properly. The tax sale buyer may have lost the land and the large consulting fee.
Indiana counties offer thousands of acres of land each year for sale to the public at tax sales. The counties auction land to recover annual property taxes that the land owners have failed to pay. The auction proceeds pay the past due real estate taxes.
The auction prices are often less than the land values and some buyers can buy land for pennies on the dollar. For example, a person may buy a house for $750 that is worth $10,000. The house may require improvement to make it useful, but a smart buyer can research properties before tax sale and find great bargains.
Tax sale law is very complicated and misunderstood. Many new buyers think they can buy land and receive deeds for their new land at tax sales. However, the county will give the buyer a “tax sale certificate” at the tax sale, instead of a deed. The buyer must complete much work before the county will give him a deed.
The buyer must make a list of each person having “a substantial interest” in the real estate. This list includes the prior owner, who lost the property on tax sale, and certain creditors, such as banks holding mortgages and judgment lien holders. A title company can study the real estate records at the courthouse, and then an attorney can examine the title search report and list all the people, who have substantial interests of record in the real estate.
The buyer’s attorney must send a “Notice of Sale and Redemption Period Expiration Date” to each person on the attorney’s notice list. Indiana’s notice law sets out 15 different statements that must appear in the notice. The notice must be sent by certified mail. If the notice is unclaimed, undeliverable or refused, the notice may be published three times in the local newspaper (sometimes a sizable expense). Inadequate or late notice may destroy the buyer’s tax sale purchase.
Any person may “redeem” the real estate at any time within 1 year after the tax sale. The redeemer must pay money to the county and restore the real estate ownership back to the prior owner. The redemption price must include the amount of the tax sale price and a reimbursement of the expenses paid by the tax sale buyer with interest.
If no one redeems the real estate after 1 year has passed, then the buyer must petition the court for a tax deed and send another notice. The buyer must give notice of the petition to the people listed on that notice list. If no one objects to the petition within 30 days after the petition is filed, then the court will direct the county auditor to issue a tax deed to the buyer.
The tax sale purchase may still be a good deal, even after the title search fees, attorney’s fees, certified mail fees and newspaper publication fees, but there is 1 more catch. Many title insurance companies refuse to insure title that includes a tax deed because too many buyers (and many attorneys) do not complete the statutory requirements correctly. Therefore, if the buyer wants to sell the property or get a mortgage loan on it, the title insurance company may require the buyer to file a quiet title lawsuit against the people on that list. A quiet title action is a lawsuit against everyone who may hold a claim on the real estate and it seeks the Court’s declaration of clear title. Quiet title actions can cost several thousands of dollars if contested.
Tax sale buyers should purchase carefully. A tax sale property may be a great deal…..or maybe not.
THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.