Ever since I was a teenager and the hit show Storage Wars came out on A&E, I have been fascinated with auctions. In the show’s case, I always found it so amazing that people who sometimes own very valuable assets just don’t pay for their storage locker! This opens up a feeding frenzy for anyone interested in bidding on it, claim it as their own, and resell the items.
Tax sale auctions are very similar. Real estate owned by an individual or entity has its associated taxes for a particular county that it’s located in. Every year the property taxes are due and if not paid, they accrue interest and late fees over time. If carried on long enough, these late fees and interest pile up to create a hefty tax bill. Here is where the opportunity arises.
Typically after many years of not paying county tax bills, the county in which the real estate is located will move to foreclose and repossess the property. Usually this is done with a law firm who opens suit against the property owner for their lack of tax payments. In order to do this, the law firm usually does a title search on the property being foreclosed. This is important for them to do to make sure the property in question is owned by who the county tax office says. You see, the county clerk’s office and the tax assessor (appraisal district, tax office, etc… Every county has different verbiage for the office name) are two completely separate entities. When buying a piece of property, the deed will be recorded in the clerk’s office putting the world on notice that ownership has changed. This is what matters when chain of title is examined. However, the tax assessor in many counties only updates their records once or twice a year. The assessor goes to the clerk’s records and makes any ownership changes to the tax roll. So if a piece of property was sold and recorded in February but the assessor doesn’t update their records until the fall, the real owner will not show up on the actual tax roll for months!
Problems occur because sometimes the tax assessor will mess up when transferring the ownership when a piece of property is bought or sold. Sometimes they will forget to transfer ownership, or create two “accounts” on the tax roll. Property tax will pile up interest on an old owner who sold the real estate while the rightful owner is paying the tax. It would be very easy for the county or a law firm to mistake such a property as being delinquent, when really the tax roll just has multiple accounts for the same property with the current owner paying taxes and the old owner not paying taxes. This is why a title search is important before foreclosing and auctioning it off!
During a tax sale, there will usually be a minimum bid. This number is derived from the amount of taxes owed to the county; they want their money! The piece will be auctioned off on the courthouse steps by an auctioneer with the sheriff present. Typically the property will be granted on a sheriff’s deed which has NO warrants. However since a title search was conducted by the law firm filing suit in the beginning, it’s safe to say the title is clean. Anyone who is present at the courthouse is free to bid on a property. Keep in mind that payment is expected same day and the county will only accept cashier’s check or cash. Similar to the show storage wars, people like to bid things up without any idea of location or value. I find it difficult to get good deals at these auctions for this reason. The Lookie Lou’s always seem to ruin the fun, but there are always diamonds to be found in the rough!