Tax Deed Sale - Tax Deed Sale Process

Tax Deed Sale Process

Real estate taxes are considered delinquent if not paid within a specified period of time. If the taxes are not paid, after legal requirements are met (such as giving proper notice to the property owner as well as others holding an interest in the property, or by filing required action in the courts), the property is offered for sale at a public auction.

At the sale, the minimum bid is generally the amount of back taxes owed plus interest, as well as costs associated with selling the property. In the event the property is not purchased, title may revert to the governmental entity that offered the property for sale. Title is generally transferred in a tax deed sale through a form of limited warranty or quitclaim deed (sometimes styled as Tax Deed or Sheriff's Deed); the purchaser would most likely then need to initiate a quiet title action in order to resell the property later (as a quitclaim deed is generally insufficient to acquire title insurance). However, the property can be sold from one investor to another by cash or owner financing using a limited warranty, Sheriff's Deed, or even a quitclaim deed.

Some jurisdictions allow for a post-sale "redemption period," whereby the former owner has a specified amount of time to reclaim the property by repaying the amount bid at auction plus a penalty. For example, Texas allows a 6-month (for non-homestead, non-agricultural properties) or two-year period (homestead or agricultural properties), with a flat 25% penalty to be added to the amount paid at the sale (50% after the first year), while Tennessee allows a full year, with a 10% penalty. As such, purchasers of properties at tax deed sales are cautioned not to make major improvements on the property until after the redemption period has expired.

A tax deed sale may also be used in conjunction with a tax lien, whereby the lienholder (instead of a governmental agency) starts the process toward forcing a public sale of the property. In those instances the lienholder's investment (the price of the lien plus any additional costs necessary to start the tax deed sale process, such as required fees and payment of any still-unpaid taxes or buyout of other certificate holders' interests) constitutes the minimum bid; if no other bids are received at the sale then the lienholder will take title to the property subject to redemption periods (if applicable) or any lawsuit to overturn the sale (for example, failure to provide proper notice).