When you hear about properties being sold for back taxes, a tax deed to the property is actually what's being sold. The government can sell your property to another person for pennies on the dollar, and many investors use tax-deed auctions as a way to leverage their money by buying the property below market value and quickly reselling it for market value.
Every property owner in the country has to pay real estate taxes to a local or state government. When the property owner fails to pay the taxes, the government can seize the property and issue a tax deed. The government can then sell the property at auction to recover the taxes, and the winner of the auction gets a tax deed to the property. The tax deed gives the deed holder a claim on the property. However, some states allow the original property owner to pay what's due and reclaim the property within a certain period of tome.
Tax-deed auctions are publicized by the local governments and the properties to be auctioned off are listed. This gives potential bidders time to research the properties involved and decide if the market value will be high enough to justify the cost of winning the auction.
The beginning price for a tax deed will include the back taxes, interest, fees and court costs associated with the property. The total of these fees will be substantially lower than the market value of the property, but because it is an auction, the purchase price can be higher than the starting bid.
The auction winner becomes the new owner of the property once the time period has passed for the original property owner to repay the back taxes, penalties and interest. Owning the tax deed gives the deed holder first priority when the property is foreclosed. However, it may take some time following the auction for all of the lien obligations to be cleared and for you to assume control of your new property.
Most people who buy tax deeds do so not to purchase the property but in the hopes the property owner will pay the back taxes and interest, which can be as much as 50 percent.
Rules and processes vary from state to state. If you find an auction that has properties of interest to you, contact the tax office of the government in charge of the auction and find out what you need to do to participate in the auction.
James Rada, Jr. was a newspaper reporter for eight years and earned 23 awards from the Maryland Delaware D.C. Press Association, Associated Press, Society of Professional Journalists, Maryland State Teachers’ Association and CNHI. He also worked for 12 years as a marketing communications writer, earning a Print Copywriter of the Year Award from the Utah Ad Federation. He holds a Bachelor of Arts in communications.