Buying a Home Through a Municipal Tax Sale

If real estate investing is something that you are interested in getting into buying homes through government foreclosure is an option being explored as investors look for creative methods of getting a higher return on their investment in a market with as much risk as the one we are engaged in today. What government foreclosure is is similar to that of a bank that rescinds a mortgage because of failure of payment. The only difference is that a bank forecloses because of the homeowner's failure to pay the mortgage payments in a timely fashion. On the other hand, a government tax sale occurs when a homeowner fails to pay city, county or state taxes as assessed by the assessor's office in the local municipality. So the government office, usually the trustee's office, issues a writ of possession on the land and the house and sells it on the steps of the municipal courthouse.

The process for becoming a bidder on a property up for tax sale is a simple one. But, if you are unfamiliar with the process it is wise to consult an attorney so that you have a full understanding that includes waiting a year for redemption to take place. Beyond that one slice of confusion the process is simple.

Upon arriving at the location where the tax sale will take place, you need to register and receive your bidding card. After you do this and you know which properties you will be bidding a waiting game begins as you practice patience. Normally, unless a property is highly sought after you will find yourself one of only 2-3 bidders on a property. And sometimes you will be the only bidder at all. As with any auction-like environment, you will need to remain if you are the highest bidder so that your bid can be certified by the municipality. In most cases, no deposit is necessary. The only requirement is that you pay the entire price in full within twenty-four hours of the conclusion of the tax sale.

When the bidding is taking place a couple of things you should be aware should include the minimum bid price. This is the price at which the sale begins because it is the amount owed to the city and/or county municipality for them to get the house out of arrears to them along with any fees associated with the tax sale. Fees could include newspaper postings or any advertising required by law for a tax sale to take place. In Memphis, every tax sale is posted via the county website along with the local paper, The Commercial Appeal.

Similar to any closing, a period of confirmation takes place over the next 30-45 days. During that time the court files a list of all properties sold and who the new rightful owner is. When confirmation has been completed a Clerk and Master's Deed can be received at the Chancery Court Clerk's office. However, the sale has not been completed until the property is registered at the county register's office for tax purposes. This completes the transfer of any property bought or sold in a county.

The interesting thing about the year following a tax sale is the option for the former owner to do what is called property redemption. With property redemption the former property owner can basically pay you the bid price you received the property at plus an annual percentage of said price. In Shelby County that percentage rate is ten percent. Additionally the court has the option and discretion to amend the redemption price to include maintenance and care undertaken by you during that period of time. While this happens it is not an often occurrence. This is one of the reasons why you should consult an attorney before entering the time of investment pipe stream. If you begin renovating a recently acquired property within the one year redemption period there is no guarantee that the court will side with you and force the former property owner to return to you any capital that you put into the renovation. So it is wise to wait until the year has concluded to begin any major work on the tax sale property.

Certainly with the nuances of it, buying properties at a tax sale can be an adventure. But if you are looking to invest in an area that is not the hot section of town and really want to make a significant investment buying properties at tax sale is a realistic way to get into real estate investing. But beware. That year needs to be honored or you will pay a price.