Tricky ways to get property
May 9, 2010 5:29 PM   Subscribe

I've heard that a person can acquire a property for which the property taxes are in default by paying the back taxes. This seems fishy, and morally questionable, but is it true? In Los Angeles? Are there other tricky ways to acquire property?
posted by gilgamix to Home & Garden (12 answers total) 4 users marked this as a favorite
You're talking about a tax deed sale. They're quite common.
posted by saladin at 5:41 PM on May 9, 2010

It's not tricky or fishy. What happens is: (1) property taxes don't get paid; (2) the entity (usually a county) allowed to levy those taxes gets a lien against the property roughly equal to the unpaid taxes, the penalty amount, and certain administrative costs; (3) the lien (like a mortgage) acts as a security for the debt. The holder of the lien is entitled, eventually, to sell the property in order to collect the money owed.

In many places (Cook County, where I live, for instance), the county doesn't sell the property, instead it sells the lien, usually for less than the full amount owed. The purchaser of the lien now has the right to enforce the lien and/or collect the debt (the unpaid taxes). In most places, there is a "statutory redemption period"--a period of time during which the record owner (or title holder) of the property may "redeem" (or "pay off") the unpaid taxes (with or without penalties) which releases the lien. After that period expired, the owner of the lien will have various statutorily delineated ways of enforcing the lien available. Around here, you file some paperwork and you get the title to the land.
posted by crush-onastick at 5:46 PM on May 9, 2010

"Tricky ways to acquire property" for $100 would make most lawyers respond with "What is adverse possession?" with virtually no other prompting.

IANYL, TINLA. Adverse possession law varies drastically among jurisdictions and is fraught with pitfalls. If you're just curious, no problem, but seek legal advice if you're making a decision.
posted by tellumo at 6:09 PM on May 9, 2010

Best answer: Yes, but recall, to buy the property free and clear of any liens you'll end up paying at the tax foreclosure sale:
Back taxes, costs, penalties, and
any mortgage debt on the property.

The failure of the owner to pay taxes does not affect the security interest granted to the purchase or refinance lender.

Thus, a hypothetical:

Property is worth $300k.
Tax debt is $50k.

Looks like a bargain if you can get $300k of property for $50k. __IF__ there is no trust deed securing any debt then in fact you can get it for $50k but

if as is more common
property is worth $300k
purchase money debt is $280k
tax debt us $50k

then to get that $300k property you'd have to pay $280k+$50=$330k. Not such a great deal.

So, it's doable but do your research. You can pay the county their $50k (in my hypo) and get a deed from them so that as to the county and the prior owner you own it, but that doesn't wipe prior owner's bank debt off the property.
posted by BrooksCooper at 7:20 PM on May 9, 2010

Yes this happens -- I have an attorney friend who does just this. His law firm represents the school districts, who are the recipients of property taxes in Texas. So, as an example, see Linebarger Goggan Blair & Sampson, LLP. They are a very large law firm, and do this for Texas, Pennsylvania, Tennessee, and Virginia. If you click the link, there's a link on their website for each of these four states, explaining what they do, the process, how bidding works, and where they post information about property sales.
posted by Houstonian at 8:39 PM on May 9, 2010

Are there other tricky ways to acquire property?

A sadly common one these days is a mortgage foreclosure rescue scam. Basically, you lie to someone that you will pay their mortgage for them until they are back on their feet, and get them to sign over the title deed. Guess what you just got? Free house (with a lien, but your credit is probably better, or you have buyers lined up).

This seems fishy, and morally questionable

It's not really fishy, as it's the inevitable result of a legal process by a taxing jurisdiction. It's not like a bank, where acquiring the property is an option. The county (usually) doesn't want to own something, they want it owned by somebody and paying in taxes.

As to morally questionable, this is essentially defined as a bottom-feeder type of activity. Profiting off of another's misery. You won't find people bragging about it much, mostly just quietly going about flipping the stuff they pick up dirt cheap. BrooksCooper identified the basic pitfall, so you need a good attorney with local connections who can scarf up any potential lien issues or other encumbrances. The ones that are upside-down are ones you should leave for the banks to take back.

While you don't specify that you're contemplating this, I would classify this as a venture in which a novice could get badly burned.
posted by dhartung at 10:10 PM on May 9, 2010

Yes, it is morally reprehensible in fact. (in many cases) There are too many stories of government malfeasance, corruption, and incompetence that results in some poor shmuck having his property forcibly taken from him and sold to cover relatively small amounts. The amounts themselves may be in question or disputed. The government has no incentive to extract a fair value.
posted by chinabound at 10:23 PM on May 9, 2010

Out here in the vast, empty upper midwest, sales like this happen approximately yearly; I wouldn't classify them as "morally reprehensible," though -- being six months late on property taxes doesn't result in a county sale. These are properties that are abandoned and falling apart -- it takes a few years of trying to contact the rightful owner before the property is seized. The idea is that whoever purchases the property is more likely to improve the land and thus reduce the amount of squalor in the area. Certainly, corruption could result in a lot of gray-area seizing, but the problem is the corruption, not back-tax sales; they're a tool a county uses to avoid becoming a patchwork of abandoned property.

Compare to driving around without plates on your car -- the car will get impounded, and you'll have a certain amount of time to pay to get the car back, but if you don't pay then the car will be sold off. Driving without plates is illegal, not paying property taxes is illegal, this is right in line with how government handles private property which isn't being maintained to legal standards. IMHO, foreclosure sales fall further on the "morally reprehensible" scale than a tax sale does.
posted by AzraelBrown at 5:26 AM on May 10, 2010

If you owe less in taxes than the property is worth, wouldn't it make more sense to sell the property and pay the taxes and keep the difference?
posted by smackfu at 6:23 AM on May 10, 2010

Many properties that get sold this way are abandoned in some way. The owners have died, are in prison or hospital, away from the country, inherited the property and either want nothing to do with it or don't know, etc.
posted by Mitheral at 11:37 AM on May 10, 2010

smackfu, in practice, most properties with shortfalls in property taxes would be encumbered by a mortgage. I'm sitting on an instructive example -- four properties with $15K in prop tax owed, mortgages reducing equity to effectively zero or underwater (and two of those mortgages are in an interest-only lock on the majority of the principal). Usually someone in this position (in this case, my dad) has been in financial straits for some time.
posted by dhartung at 10:37 PM on May 10, 2010

In New Orleans, where I live, it goes like this.

Property owner (whether or not there is still a mortgage owed on the property) misses paying their property taxes for two years.
Government ?? and then sets up a listing in a tax sale that happens twice a year.
Property may be "bought" for the amount owed in back property taxes.
Buyer must notify owner that the house has been "bought" in the tax sale. The owner's options at this point: pay the buyer the amount in back property taxes, plus interest OR do nothing. If the owner does nothing, after a certain period of time (18 months to 3 years, depending on the circumstances) the title to the house is handed over to the new buyer free and clear.

Worst case scenario for the buyer? You get your money back with a pretty decent interest rate.
Best case scenario for the buyer? You get a house for like $5000.
posted by Night_owl at 9:05 AM on May 11, 2010

« Older Oil Spill Hands...   |   How to publish my French teaching materials? Newer »
This thread is closed to new comments.