A tax sale is basically a property auction that allows the government to reclaim past tax defaults. Tax sales are similar to foreclosure property seizes, where public auctions are held to help recover monies owed, and in most cases the said property is sold at rates much lower than their projected market value. Tax sales are therefore ideal investment opportunity for those looking for attractive returns on their investment or just exploring future prospects in real estate investing.
A tax sale is a type of foreclosure auction where a government body or political division seizes a property for nonpayment of taxes and then sells it to help compensate for monies owed. Public auctions are advertised and held annually or biannually.
How Foreclosure Auctions Work
Although a tax sale is inherently not a foreclosure, the public auctions are conducted in much the same way. Local municipalities and country administration bodies conduct sales by publishing listings online or in the newspaper. The auction allows the highest bidder access to a certificate that confirms the sale, and in most cases the title deed itself is conferred only after the taxes owed are fully disbursed. The certificate comes with a fixed redemption period within which the taxes must be paid by the bidder, failing which the property is liable to be lost and the auction may in such cases reopen.
In general, properties that are currently mortgaged can still be sold without the loan foreclosed, in which case the lender does not lose out on the security just because of unpaid taxes. The lender in most simply pays the levy and then collects it from the borrower either from the proceeds of the auction or as amended loan payments. For this reason, properties with first mortgages are not preferred for a tax sale.
Investing in Real Estate Auctions
Depending on the location of the property and the state in which the auctions are conducted, investing in real estate from foreclosure auctions can be highly profitable. This is because in most cases the typical auction value is much lower than the market value of the property, which means you can make that dream investment in a home or even a plot of land for a fraction of the actual cost. In effect, the money you put in is used to compensate for the funds owed by the delinquent homeowner. The return on your investment can be in the form of liens or actual deed sales, depending on the possession rights sold by the county body. Lien sales allow you to receive high interest rates on your investment, while deed sales transfer full property rights to your name.
In certain cases, the municipality holding the auction may permit previous owner to redeem their property. This is primarily intended to help avoid disadvantaged owners or even widows from losing their properties because of previous defaults. In such cases, the original owner may choose to redeem the auctioned property from the holder of the certificate, but such buy backs require an additional payment which could be a percentage of trade value depending on the time elapsed after auction closure.
Because a tax sale is intended to wipe out any extended tariff defaults, the property itself is delivered to the buyer free of any attached liens. However, as with any real estate investmentFind Article, it is important to ensure that the title does not come with related issues including encroachment or other legal conflicts. This means that potential bidders must undertake an in-depth analysis of the property including purchase history and full title searches to ensure that the final ownership rights are not compromised