The tax system is quite comprehensive to exhaust in a single blog. This blog will focus on tax sale property, mainly found in real estate, referring to properties sold by a municipality when the owner fails to pay taxes related to the property. It’s the common method that the government uses to punish those who default taxes on real estate properties.
Every day, hundreds of real estate properties are put on tax sales, but the new owners end up in issues with the law for not following the right process. Hopefully, you are well acquainted with how the entire process goes and which method you can use to purchase a property on a tax sale.
Let’s learn more about what is a tax sale property.
Types of Tax Sale Properties
Tax deed sale
There are two main types of tax sale properties: tax deeds and lien sales. Tax deed refers to when the buyer is purchasing the property itself with all its unpaid tax debts and title. The sale mainly occurs through online or in-person action. During purchase, the buyer who makes the highest bid wins the property, although they must remain within the country’s regulations regarding tax sales.
In a tax deed sale, the buyer gets an average of 48 to 72 hours to settle the amount owed to the property; otherwise, the deal is cancelled, and the municipality retains the deposit. The title is transferred to them through a limited warrant when the buyer purchases the property successfully.
However, purchasers of tax sale property through tax deeds are advised not to perform major improvements on the property or resale it until the limited warranty has expired. Another limitation of tax deed sales includes the municipality quoting the property at a higher price through bidding.
Tax lien sale
Tax lien sale refers to when purchasers obtain lien (rights) on the property, not the actual property itself. Tax lien sale usually involves the amount of defaulted taxes, costs associated with the sale, and accrued interest. In most cases, several buyers seek to acquire rights to a single property. Thus, the municipality determines the winner through different methods.
For instance, the bidding method allows the highest bidder to win the property, while in the premium method buyer willing to pay the highest premium gets the property. The municipality can also develop a lien and employ a random selection of interested buyers. Whoever accepts the settled lien wins the property.
Other methods of determining a buyer in tax lien sale include bidding down the ownership, which refers to when the buyer willing to get the property for the lowest rate of encumbrance on the property wins the property. Rotational selection is the last method on the list, whereby the first lien is offered to buyer number one.
If they find it unfavourable, buyer number two can acquire the lien, and so on, until a willing buyer is found. In this method, buyers have no control over the amount of lien offered but have the right to accept or decline.
The Process of Putting a Property on Tax Sale
Tax sale on properties doesn’t happen suddenly. It’s a gradual process that involves various stages to ensure neither parties feel intimidated nor some of their rights ignored. The municipality (or any other chosen government)must follow the steps critically; otherwise, one of the parties might lose the rights to the property before a court of law.
To initiate a tax sale on the property, the municipality sends a mail or letter to the property’s registered owner(s) and any person associated with the property, including mortgage holders. It can alternatively place a public notice in a newspaper associated with the county’s real estate legal issues.
Both requirements should offer the property owner enough time to receive the message and act accordingly. Another method of notifying owners that their property will soon be on tax sale includes posting notices at the local courthouse or any public destination specialized in official government notices.
Lastly, the municipality can post a message at the property in an area visible to the owner(s), such as in the mailbox, front door, or near the main gate. The methods also come with a well-stated timeframe for the owner to prepare themselves enough to make the payments.
How Can Property Owners Stop a Tax Sale?
Property owners can stop an ongoing tax sale process during the notice stage by paying the entire tax amount owed, alongside the penalties, interests, and any fees associated with the sale. However, the amount is usually higher if the process is mid-way compared to when it hasn’t been initiated.
Other countries allow property owners to get the property back by paying all fees even after foreclosure, which is more costly than when the process is ongoing. It’s better to pay the fees when the process has just started than when it’s done.
Furthermore, property owners shouldn’t default on the taxes at all as it gets worse with time. If the owners aren’t satisfied with the entire process, they can file a complaint with a court of law. The court then sets the property aside until all the issues have been resolved.