Facts About Buying Tax Foreclosure Property
Buying tax foreclosures is an area that has a core of good potential surrounded by a sea of dubious practice. The Internet is awash with promises of getting rich quick by dealing in tax foreclosures. The reality is somewhat more thorny. To succeed in acquiring a good foreclosed property, as opposed to a financial nightmare, you must be willing to do the research before you put the money down. If you are not a lawyer who specializes in real estate law, you will need to hire one.
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What is a Tax Foreclosure Property?
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A tax foreclosed property is a property that has been taken away from its owner by the government because the owner was unwilling or unable to pay back taxes. When this happens, the government recoups its taxes by seizing the property, selling it at auction and keeping the proceeds. Tax foreclosure sales received a lot of attention around 2008 because of the economic downturn, problems in the mortgage market and a resultant rash of foreclosures around the United States.
Who Can Buy a Tax Foreclosure Property?
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Anyone with the money is allowed to bid at a foreclosure auction, with the very significant exception of the owner of the property or any representative of that owner. This restriction is for the obvious reason that, if the property was worth little but owed a large amount of back taxes, the owner could refuse to pay the taxes, allow the property to be seized, then buy it back at auction for less money than was owed in taxes.
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Risks of Foreclosure Purchases
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When considering a foreclosure purchase, it is imperative that a thorough title search be performed by a qualified real estate lawyer. Although details and regulations vary from state to state, there are a number of pitfalls for the unwary buyer that can occur anywhere. The major pitfall is the risk of unwittingly buying liens and mortgages that are on the property. In a foreclosure sale, you are not protected by the same laws as in a regular real estate purchase, and if you buy a property and later discover a major debt that is attached to that property, you are responsible for that debt.
Foreclosure Properties Often Have Problems
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Because of the nature of foreclosed properties--which were owned by someone who didn't have the money to pay the taxes--they can frequently be in less than ideal condition. They are often bought up by dealers or contractors who have the skills and connections to renovate them and return them to saleable condition. Foreclosure auctions are not for those who are looking for a low-risk, low-stress enterprise.
Benefits of Foreclosure Purchases
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If you know what you are doing and are cautious, there is the potential to make a fairly large amount of money in a very short time. In order to do this, you must be able to look at a property and accurately determine its market value, its problems and how much those problems would cost to fix. The more volatile the real estate market is, the more risk for both success and failure exist in the field of foreclosure deals.
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