How to Purchase Tax Foreclosure Houses

Tax foreclosure houses are sold through a public auction.

Counties rely on the collection of property taxes to fund local government services such as police, fire departments, libraries and parks. If a homeowner fails to pay property taxes, a property tax lien is recorded against the property. In most counties, failure to pay property taxes for 5 consecutive years results in a tax foreclosure. You can purchase tax foreclosure houses through public auction, often at a fraction of the market value.

Instructions

1. 

   Local newspapers advertise tax foreclosure sales.

   Most states mandate the rules and regulations governing the advertisement of a tax foreclosure sale or public auction. Check with the local paper for listings of public auctions or tax sales. For a fee, online vendors offer a list of tax foreclosure homes available through public auction throughout the United States.

2. 

   Research the house before the public auction.

   Tax foreclosure houses are sold "as is," meaning the county does not guarantee the condition of the houses. To avoid bidding on a house you do not want to own, conduct research. Find the parcel number and address from the county tax collector. Investigate zoning and permit history on the property to see if the house is built in a residential area and whether or not any improvements have been recorded. Visit a title company and purchase a preliminary title report and general index search to determine if there are any other encumbrances on the property. Finally, inspect the exterior of the house and examine the neighborhood.

3. 

   Cash or certified funds are needed to complete the sale.

   Check with the county see if you are required to register as a bidder before the public auction. Some counties, such as Sonoma County, California, require bidders to deposit $5,000 plus a $15 processing fee to register for the sale. Most counties only accept certified funds, meaning cash, cashier's check, money order, wire or electronic funds transfer from a bank. Some public auctions are held in person. Others are strictly online. On the day of the public auction, opening bids start at the minimum amount required to pay off the defaulted taxes and costs. Bids escalate in increments of $100 until the close of the auction. A successful bidder pays the purchase price plus any other fees required by the county, such as a documentary transfer tax. If the successful bidder fails to make payment, the county reserves the right to seek legal action against the bidder and prohibit the bidder from attending future public auctions.

Tips & Warnings

• Verify with the county if there is a redemption period. Some states allow the previous property owner to pay the defaulted taxes and penalties in full to reclaim the property within a limited time period.

• If an Internal Revenue Service lien has been recorded against the property, the Internal Revenue Service has 120 days after the sale to redeem the property. The Internal Revenue Service must pay you the cost of the property plus a specified rate of interest from the date of the sale, if the Internal Revenue Service chooses to exercise its right of redemption.

• If the property is occupied, check with a real estate attorney regarding the eviction process.

• Tax lien certificates are good alternatives to buying tax foreclosure houses. Check with your state to see if tax lien certificates are sold to investors.

• If there are any other encumbrances on the property other than the defaulted taxes, you may be liable for payment. Check with any lien holders on the property prior to making a bid for purchase.

• Most title companies will not offer title insurance for the first year of a house purchased through a tax foreclosure. This may result in the property not being marketable for the first year unless the previous owner agrees to sign a quit claim deed.

• The previous owner may file a claim against you within the first year of a tax foreclosure to challenge the sale.

References

• County of Sonoma Treasurer-Tax Collector: Internet Auction of Tax-Defaulted Property
• Foreclosure Listings: Saving Money with Government Tax Foreclosure Properties
• Foreclosure Warehouse: How to Buy Government Tax Foreclosure Properties?
• Foreclosure Deals: Tax Foreclosure Properties