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     I’ll bet that, if you’re old enough to read, you’ve already seen a lifetime’s supply of get-rich-quick ads with blazing headlines like “How to Retire at 12 as a Land Baron” or “How I Became Obscenely Wealthy Buying Real Estate at Tax Sales”.  Perhaps you’ve wondered why, if making a fortune is all that easy, the authors of these books, brochures, and seminars had to resort to hawking their books, brochures, and seminars in the first place.  When you hear, or more likely, read about, someone buying land “for the back taxes” it’s a pretty good bet that there was, at the very best, quite a bit more involved in the transaction than that.

     What I have to tell you won’t do anything to dispel your cynicism.  Just like so many other things in life, if it sounds too good to be true, then it probably is.  That’s not to say, however, that you can’t obtain title to land through a process that begins with your successful bid at a tax auction, but it’s far from a sure thing, and it probably isn’t what you’d consider easy, and certainly not quick.  On the other hand, you may find that tax auctions can provide a nice source of income, a way to own land without spending a great deal of money, or just a way to pick up that property that adjoins yours.  If you do succeed in finally acquiring title, it will most likely be because you did your homework and understood the appropriate laws and customs.

     Buying land, or a tax certificate, at a tax auction, is not something you want to do carelessly.  For example, last year I bought a tax certificate on a small property that appealed to me, only to find when I got home, a one-word error in the legal description that the County Tax Collector had published in the paper.

     Having the same sort of larcenous reactions as the next guy, my first thought was to cross my fingers and keep quiet, but if someone else had noticed the error in the future, the whole sale could have been thrown out anyway, perhaps after I’d added substantially to my investment by ordering title work and hiring an attorney to quiet the title. 

     Laws governing how delinquent-tax properties are sold vary from state to state, and whether you consider such sales to be an attractive deal for you will probably depend to a great extent, on where you live, because although there is a great similarity in how most jurisdictions go about these matters, there are also a few outliers where details are decidedly dissimilar.

     Here’s how it typically works: after a landowner has become delinquent in paying his taxes for a period of time, commonly two or three years, the collector will publish an advertisement in the local newspaper offering to sell tax certificates, or a tax deeds, on delinquent properties at auction.  Before you begin in earnest, your first step should be to study your state laws relating to tax auctions.  You can find most everything you’ll need to know in a couple of web searches.  You can also find information about where and when auctions are held in your county, or if you prefer dealing with humans, just call up the County Collector’s Office at your local county seat.   Tax auctions are held annually, usually on a date prescribed by state law, so the first thing you need to find out, is when your local auction will be held.

     When that time comes, generally the month preceding the auction, the properties whose certificates are to be auctioned off will appear in the “Legals” section of a local newspaper, or better yet, you can stop by the Collector’s Office for a copy of the list which may be updated with more recent information than the newspaper.

     Viewed from the broadest perspective, tax sales are of two types: those that give the successful bidder a Collector’s Deed to the property immediately after the sale, and those where the successful bidder is purchasing a Tax Certificate rather than a deed, which is given after the expiration of a redemption period.  Some tax-deed states have redemption periods when the owner who failed to pay the taxes may recover the property following certain rules, some don’t.

     In either case, however, the most important thing for anyone anticipating buying land at a tax auction to remember is that a Collector’s Deed does NOT grant clear title to the property, meaning that the title cannot be insured, thus making it impossible, or at best very unlikely, that the property can be sold or mortgaged.     

     We’ll get into how you go about getting marketable title to land you bought at tax auction in a bit, but for now, let’s examine the two sorts of tax sales.

     Tax Collector’s Deed Auction

     If you are of the habit of not paying your real estate taxes in a timely fashion, then it would be better for you not to be located in one of the states which sell delinquent properties via Collector’s Deed auctions because in these jurisdictions, the process of losing your land is faster, less restricted, and more streamlined.  That is, the delinquent owner has less opportunity to redeem what was formerly known as “his” property before it winds up in the hands of an auction bidder or claimed by the state.

     At a Collector’s Deed auction, you are presented with a deed either immediately after the auction, or after a brief redemption period.  This gives you the opportunity to begin clearing the title to the property after a shorter period of due process.  Since you are the owner of record (after your deed is recorded, of course) you can begin to use the property, although you shouldn’t do very much work, or spend very much money, because you still don’t have marketable title.  You absolutely should not move onto the property, or start to “clean things up” by removing anything you find there.

     If your state is one of the ones listed in the accompanying chart as a Tax Deed state, you can skip the next topic and go directly to “Quiet-title Suits.”

     Tax Collector’s Lien Certificate Auction

     When you are buying only a tax lien certificate, you haven’t actually bought the property, you’ve bought the right to pay the past due taxes.

     Why would you want to do that?  Two reasons: first, this is the only path available to get the property titled in your name, second, if the tax-delinquent owner surfaces and redeems the property, you get to charge him interest on the money you bid to win the auction, plus (maybe) some of the incidental expenses you will have incurred, such as having a title search done.

     Whether the latter reason is sufficient reward for your costs depends on you and the laws in your state.  Tax sales don’t tend to draw the sorts of high bids you might see if they were simply auctioning off a parcel of land.  Some folks with plenty of free cash actually make a living buying tax certificates simply for the interest they gain, however, if you want to do this, you have to be prepared to wind up in ownership of the property, meaning that you’ll have additional expense clearing the title and perhaps marketing the property.  So to summarize that point, if you want to wind up owning the property, you may not, and if you don’t want to wind up owning the property, you may.

     If your state limits the amount of interest you can charge to a relatively low amount, then, if your winning bid is low, let’s say $500, then you’ll risk your time researching and bidding on the property, then waiting until the redemption period expires, for a relatively insignificant amount of gain.  In Oklahoma, for example, winning with a $500 bid would cost you over two years of your time and net you $80 for your effort and investment in the event that the property is redeemed.  It’s easy to imagine that there aren’t very many people trying to make a living buying tax certificates in Oklahoma.  By contrast, in Connecticut you’ll probably have to bid more, but you’ll make over twice as much interest (18%) on the larger sum in half the time (1 year).  Needless to say, the state you’re bidding in makes a major difference.

     I’m assuming though, that your interest isn’t in charging someone interest on a small sum of money, but in obtaining title to a piece of land to call your own.  I’m about to tell you how to go about doing that.

     Naturally, each state has its own particular process, but they're mostly pretty similar and go something like this: suppose you’ve found a property that interests you.  The published notice will give you an abbreviated statement of the legal description and the amount of the taxes due.  However, there are a lot of other things you’re going to want to know before you’re ready to bid on the property.

     I’d strongly recommend that you find the physical location of the property and look it over.  That, as you will quickly learn, isn’t nearly as simple as it sounds.  After you’ve read Chapter 10 and learned how to read the legal description, then you can probably get a pretty good idea of the approximate location of the tract you’re interested in, but it’s doubtful that you’ll be able to see where the exact boundaries are.  Chapter 5 will give you a little help with this, but you may not be able to follow all those suggestions on a property you don’t already own.

     Through a process of thorough research, you may discover things that give you an advantage over other bidders.  For example, this year, I plan to bid on a property that I owned and sold many years ago.  I’m doing this largely because I know things about this property that most folks won’t know.  In the public notice, the property is simply described as 5 acres, but there’s a lot more to it than that.

     First of all, I know that the last owners of the property, an older couple, are both deceased, I also know, that the only heirs have absolutely no interest in the land because I’ve spoken with them.  This presents a better prospect to me, because it means that if I win the bidding, the likelihood of anyone redeeming the property is slim to none.  If I know something like this, I’m more likely to bid higher than someone who hasn’t done his homework, and who’s just looking to win a bid with a low price.  In my neck of the woods, that describes most of the other bidders.

     There’s something else, however that I don’t know: I don’t know whether there’s a mortgage or other lien on the place.

     Now it’s true that a tax deed trumps any previous liens or mortgages, that is, when you receive a tax deed to the property, not only has the previous owner been presumed to have forfeited his rights, but so have any lien-holders.

     However, as part of your requirements for gaining title to the property, if you win the bidding, you’ll need to spend a hundred and fifty, maybe two hundred dollars or more, on a title search showing whether there are any such holders of publicly-recorded deeds of trust, mortgages, leases, liens or claims.  If this is the case, then it is your duty to notify these parties by certified mail, as well as the delinquent owners, so that they can redeem the property, i.e. pay the taxes and nullify your tax certificate, should they so desire.  (Be sure to give the collector’s office the paid receipt for the title search in order to be reimbursed in case the property is redeemed.)  This is when you get to charge your whopping rate of interest.

     What follows is a description of how the process proceeds from here in my state (Missouri).  Things will probably be very similar in your state, but there will be differences, so pay close attention to any local instructions that the collector has to offer you.

     If no-one redeems the property during the redemption period, which is most typically one to three years, then you must file an affidavit with the county collector stating that you have performed the requirements of the tax certificate, which entitles you to what the county may euphemistically call “clear title” to the property, that is, they will deed the property to you via a Collector’s Deed or Tax Deed.

    When requesting your Collector’s Deed, you will need to have the following items:

  • A copy of a recent Title Search Report.
  • Receipts of all the certified mailings you have sent to previous owners and lien-holders.
  • Copies of the First Class letters you sent to previous owners and lien-holders (copy the envelope).
  • Copies of any letters sent to “Occupant” at the address of the subject property in case the certified letter is returned unsigned.
  • Your Tax Certificate.

     Show up with all these things, and that’s all you need in order to get your Collector’s Deed, making you the owner of record.

     Well, that sounds nice and final, doesn’t it?

     Unfortunately it isn’t.

     Quiet-title Suits

     Imagine that, for whatever reason, perhaps through no fault of your own (exactly) your property, or a lien certificate thereof, gets auctioned off at a tax auction, and you don’t even find out about it until after the redemption period is over.

     How would you feel?  Well, stupid and mad are two good possibilities here.

     Then imagine what you’d do.  My guess is that you’d hire an attorney and fight like a wounded grizzly to get your property back.

     That’s why, as a general rule, title insurance companies will not insure your title if it comes only via a Collector’s Deed.   One title examiner told me that their company might insure one after 27 years.  I’m not sure what that number represents, but it gives you some insight into the matter of how much a Collector’s Deed is worth.

     However, waiting for the better part of three decades isn’t really anything that very many people want to do, and there are numerous civic-minded reasons why it’s better to bring things to a head well before that.  So, in order to get the property back to where it earns the county income again, the legal community has created the Quiet-title Suit.  As the petitioner in such a suit, it will be your burden to prove that the auction process followed all the proper steps; that everyone’s name was spelled correctly; that the advertised legal description was correct; that all the appropriate mailings got mailed, and so forth.

     Now is the time when you want to have carefully followed the process, checking and double-checking everything as you worked to obtain your Collector’s Deed, or to rue your carelessness if you did not.  If you were sloppy, or tried to cover up existing owners or liens that you knew about, this is also the time to look for a nice, soft spot where you can beat your head against the wall.  As mentioned earlier, a couple of years ago, I won the bidding on a small parcel, but then noticed that the Collector’s Office had made a mistake in the legal description that they published.  I could have kept quiet and risked more time and expense on the bet that no-one else would notice, but I felt better of it, and informed the Collector of her (boneheaded) error.  I got my bid money back, and the property was rescheduled to sell at the next year’s sale, so I’ll try again then.  Chances are, this might never have been noticed, but if it ever did come to light, it could result in the tax sale, and thus my title, being invalidated.

     As part of the quiet-title process, your attorney will place an advertisement in a local newspaper.  This ad, which is to run for several weeks, calls for anyone who thinks they have an interest in the property to appear at the quiet-title hearing.

     You can do all this yourself without hiring an attorney, but don’t.  No matter how knowledgeable you may be of legal proceedings, the judge, you’ll recall, is an attorney too, and most attorneys agree that any tightwad who acts as his own attorney deserves whatever he gets.

     The court will also appoint a guardian ad litem to represent the interests of infants, the unborn, incompetent persons and others who might have a claim to the property, as well as the ubiquitous John and Jane Doe.

     Although jumping through all these hoops may seem like a challenge, in its essence, the quiet-title suit is setting up protection of your ownership of the property from the rest of the world as of the date of the suit, so don’t knock it.

     I live in a very rural, decidedly poor area, so you probably can’t expect to get an attorney to handle your quiet-title suit for much less than the $1,000 or so that one costs me here, and if you live in a county that has more than five traffic-lights, be prepared to pay a good deal more.  If you are fantastically wealthy and have a full-time attorney on your pay-roll, the quiet-title process can be completed perhaps in as little as five or six weeks, but if you are an average schmuck such as myself, I recommend you give it three or four months.

     Finally, on the day of your court appearance, you stand before the judge, get sworn in, and your attorney asks you several questions about what has been done to find any errant owners or lien-holders of the property.  You answer “yes” to all of his questions, and…  that’s it. The judge pens a judgment, you or your attorney record it, and viola!, after only two to four years, and after tolerating a lot of red tape, you’ve become the record owner of a piece of genuine Mother Earth; you’ve probably learned a few things, and if you enjoy amateur detective work, you may even begrudgingly admit that some of it was sort of fun.  Sort of.

     Toward that noble and illustrious end, here’s a brief outline of the various states’ basic rules regarding Tax Auctions.  Enjoy.

State

Tax Deed or Tax Lien Certificate

Redemption period

Permissible interest rate

Alabama

Tax Certificate

3 years

12%

Alaska

Tax Deed

1 to 10 years

Not applicable

Arizona

Tax Certificate

3 years

16%

Arkansas

Tax Deed

30 days after sale

Not applicable

California

Tax Deed

Not applicable

Not applicable

Colorado

Tax Certificate

3 years

Fed. discount rate +9%

Connecticut

Tax Deed

1 year

18%

Delaware

Tax Deed

60 days

15%

Florida

Tax Certificate

2 years

5% to 18%

Georgia

Tax Deed

1 year

20%

Hawaii

Tax Deed

1 year

12%

Iowa

Tax Certificate

2 years

20%

Idaho

Tax Deed

Not applicable

Not applicable

Illinois

Tax Certificate

3 years

18%

Indiana

Tax Certificate

1 year

10% to 15%

Kansas

Tax Deed

Not applicable

Not applicable

Kentucky

Tax Certificate

1 year

12%

Louisiana

Tax Deed

3 years

12% + 5% penalty

Maine

Tax Deed

Not applicable

Not applicable

Maryland

Tax Certificate

6 months

6% to 24%

Massachusetts

Tax Deed

6 months

16%

Michigan

Tax Deed

Not applicable

Not applicable

Minnesota

Tax Deed

Not applicable

Not applicable

Mississippi

Tax Certificate

2 years

18%

Missouri

Tax Certificate

1 year

10%

Montana

Tax Certificate

3 years

10% + 2% penalty

Nebraska

Tax Certificate

3 years

14%

Nevada

Tax Deed

Not applicable

Not applicable

New Hampshire

Tax Deed

Not applicable

Not applicable

New Jersey

Tax Certificate

2 years

18% + 2% to 6% penalty

New Mexico

Tax Deed

Not applicable

Not applicable

New York

Tax Deed*

Not applicable

Not applicable

North Carolina

Tax Deed

Not applicable

Not applicable

North Dakota

Tax Deed

Not applicable

Not applicable

Ohio

Varies with County

Oklahoma

Tax Certificate

2 years

8%

Oregon

Tax Deed

Not applicable

Not applicable

Pennsylvania

Tax Deed

Not applicable

Not applicable

Rhode Island

Tax Deed

1 year

10% penalty + 1%/ month

South Carolina

Tax Certificate

1 year

3% to 12%

South Dakota

Tax Certificate

3 yrs. City 4 yrs. RR

10%

Tennessee

Tax Deed

1 year

10%

Texas

Tax Deed

6 months to 2 years

25% penalty

Utah

Tax Deed

Not applicable

Not applicable

Vermont

Tax Certificate

1 year

12%

Virginia

Tax Deed

Not applicable

Not applicable

Washington

Tax Deed

Not applicable

Not applicable

West Virginia

Tax Certificate

18 months

12%

Wisconsin

Tax Deed

Not applicable

Not applicable

Wyoming

Tax Certificate

4 years

15% + 3% penalty

 

 

 

 

*New York City and Nassau County offer Tax Certificates

 

 

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