Tax Deed Sale Scams

Please beware of the Tax deed sale scams. Tax deed sales, for those of you who aren’t familiar with them are sales held by the county property tax collector for the nonpayment of  real property tax. These sales are usually held by the court and sold on the courthouse steps or in the chancery courtroom.

The county must find a way to make up for lost revenue, so they auction delinquent taxes at the sale, in exchange for a receipt of bidding and a superior claim on a property. Most people think that they are getting a property, but not so. They have to wait until the redemption period has ended. (The redemption period is a period of time in which the delinquent homeowner has the right to keep their property, but they must pay the amount bid, plus accrued penalties to the county, and accrued interest due to the higgest bidder) If they redeem, the bidder gets their bid amount back, plus interest, and the tax lien is removed. If the delinquent homeowner does not redeem within the time limit set forth by law, then the higgest bidder will be given ownership, but there can be several complications.

First, you don’t get a free and clear deed to the property. You will only get a quit-claim deed from the county. Second, if there are any other liens on the property, you must file a “quiet title litigation” suit with a real estate attorney. This can take a lot of time, usually three to six months and can be quite costly. The price for quiet title can range from three to eight thousand dollars, per property depending on how complex the liens are.

In my upcoming entries, I will explain the pros and the cons to tax deed investing as well as what to avoid, and how you could get ripped off if you aren’t paying attention and not expressing good judgement.

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3 Responses to “Tax Deed Sale Scams”

  1. Phil Says:

    I just went over the list of tax deeds coming up for sale in harris, and
    galveston counties. Harris county includes the city of houston.
    Houston is about the fourth largest city in the U.S and Harris county is probably the largest county in texas.
    The combined land area of these 2 counties is about 2000 square miles
    and the population of these 2 counties is about 4 or 5 million.
    The number of deeds coming up for sale is about 30. Not many for a place with a population of 5 million. This is about a typical number of deeds
    for sale every month.
    For about half of the deeds the taxes owed are equal to the value of the property.
    For example $18000 is owed on a piece of land that is only worth
    $18000. There were about 9 houses on the list. A couple of the houses
    had old cars and trash in the yard. One of the houses looked like it was
    a partially completed abandoned brick house. The house were mostly $40 to
    60 thousand dollar houses. Even on these trashy houses taxes owed ranged
    from $4000 to $14000.
    The Gurus selling tax deed investing course would make it sound like
    Texas is a gold mine for tax lien investors because it pays 25 or 50%.
    They would show a picture of a $500,000 new house and make it sound like
    these can be bought just by paying a $1000 dollars in delinquint taxes.
    That doesn’t happen. It probaly happens about as often as people win
    50 million in the Texas lottery which is probably once or twice in ten
    years. Propety taxes on a half million dollar house in Houston are
    about $15000 a year. That would be more like the startin bid. Not $1000.
    Nice house do show up on these list but the taxes are almost alway paid
    before the tax deed auction.
    That just seems like so much dishonest B.S. Most of these people
    selling information like this have probably never bought a tax deed
    in Texas and are just ripping people off selling useless information.
    If they were honest they would tell you what you can realisticly
    expect.

    • chuckmendi Says:

      Phil,
      I’m glad you took the opportunity to reply to my post. Firstly, the counties that you ordered lists from are probably city taxes. Some larger metropolitan areas have separate county and city tax sales. You probably have been researching the inner city homes on the City of Houston’s delinquent taxes. Perhaps you can call Harris County and see if they have separate County Tax Sales (outside city limits).

      From my knowledge of tax sale investing, you will almost never find a decent home in the major metropolitan cities because these are older homes in lower-end communities. Homes in these urban areas tend to be in deteriorating condition due to the home’s age, the lack of maintenance by the homeowner, etc. One of the biggest problems with low end neighborhoods is that they usually are rentals and not owner-occupied. Generally speaking, rental properties are not maintained with the same pride of ownership that a owner-occupied home would be.

      Don’t bid on condemned property either. If you eventually became the successful bidder and owned the property after the redemption period, the home would have to be demolished at your expense. Unless the property’s location is worth a million dollars, I would recommend avoiding the property altogether.

      Vacant lots are worthless, unless it’s located in a newer development of houses, on a lake, on a beach, or in a highly desired area. I wouldn’t recommend buying these vacant lots unless you have the finances necessary to build on or develop the lot yourself.

      The properties with substantial amounts of delinquent taxes have usually been sitting in neglect for decades, meaning the home goes from one tax sale to the next because nobody wants to bid on it. Another possibility is that the delinquent taxpayer might be deceased and nobody could locate the heirs to claim the property.

      Keep in mind, if the property is desirable to own, then the homeowner would likely make the personal sacrifices necessary to pay their property tax. If the home has become a burden to own, or is no longer wanted by the homeowner, they might neglect to pay the taxes and then it shows up on the County’s list of delinquent Taxes.

      Some markets are better than others, I prefer Tennessee, which pays 10% after one year and issues a deed after a 12 month redemption period. If you look outside your area, you’re likely to find better deals. Remember not to bid on delinquent properties unless you would want to own the property. The county does not issue refunds without redemption by the delinquent homeowner. I hope this has been helpful.

      ~Chuck~

  2. Byron Prather Says:

    Tax sales are a good investment for the educated and those who don’t have to have access to their money for up to 18 months once they purchase the “deed”.
    In most states, their is always a redemption period that is to help the previous owner, possibly, reclaim their place. Once the expiration date has passed, then the purchaser of the note can finish the transfer of title without worry of losing their investment. Buying tax liens to get property is probably not the wisest investment for turnover but as a financial instrument, they are better than what banks offer.

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