A tax sale is the sale of a real estate property that results when a taxpayer reaches a certain point of delinquency in their owed property tax payments.
How Does a Tax Sale Work?
Every state has its own laws for tax sales that must be followed for these sales to be valid. The laws will vary based on which entity is requiring the taxes, whether it is a local or a state jurisdiction. In most areas the basic requirement is that adequate notice be given to the taxpayer to pay the outstanding taxes, and any resulting sale usually must be open to the public, so that an adequate price is obtained for the property. There is usually a waiting period that ranges from several months to several years before tax collection agencies are involved.
When a tax sale is triggered, the property owner has a right-of-redemption period. During this period they have the opportunity to pay off the delinquent taxes in full and reclaim the property. If the property owner fails to pay the back taxes, along with any accrued interest, the property is then eligible to be sold at auction or through other means by a governmental entity.
When a property goes to auction in a tax sale, the minimum bid price is usually set at 80% of the forced sale value of the property after subtracting any liens, based on the fair market value (FMV) as determined by the Internal Revenue Service (IRS).
Find Tax Sales Lists
You should have a good understanding of tax sales and systems used by now. Once you understand that process you can invest all over the country because each state usually follows that basic model.
Tax Sale Comparison
There are two types of tax sales that can occur when a property has unpaid property taxes. The first is a tax lien sale, and the second is a tax deed sale. In a tax lien sale, the liens on the home are auctioned off to the highest bidder, which gives them the legal right to demand lien collection, along with interest, from the property or homeowner. In the event that the property owner is unable to pay the liens, the bidder who purchased them can have the property foreclosed.
A tax deed sale, however, sells the entire property, unpaid taxes included, at a public auction. Jurisdictions may offer a right of redemption after a tax deed sale, which allows a homeowner to get their property back within a redemption period if they reimburse the purchaser the amount they paid at the sale.
Tax lien sales are both an incentive for the lien buyer to make money off the interest of the lien and a way to force the property owner to pay the outstanding taxes. Tax lien sales are only legal in 23 states in the U.S. (approximately 2,500 jurisdictions—cities, townships, and counties), and each state has its own cap for the maximum amount of interest that the new lien owner can accrue in interest.
Tax Sale List Basics
There are 2 categories of tax sale lists: Pre-auction lists and post-auction (over-the-counter) lists. Pre-auction lists are usually released 4-6 weeks before the sale. They contain all investments that will be sold at auction. Post-auction lists contain all tax liens or deeds that were offered at the tax sale, but not sold.
Some investors are concerned about getting the left over properties. They ask: “If the investors at the auction did not want to purchase these, then why would I want to?” This is valid, but the flaw is thinking of the word “want.” If other investors did not want them, why should I? That would only be the case if every investor had unlimited investing resources and every property had a buyer.
As you attend tax sales, you will notice there will probably be a lot of people there and few actually bidding, while the rest watch. In Phoenix, Arizona there were over 27,000 liens available and 13,000 left over. In Chicago there were 96,000 liens available and 44,000 left over. In Miami, 50,000 left over. There are incredible deals in those leftover tax liens.
Over-the-counter lists are usually released a week or two after the auction takes place. It takes county workers a little time to redo the list. Once the list is ready, counties will post it on their website. Investors will have to contact the county to request the updated list. Not all counties offer over-the-counter investing and hold them till the next sale.
Located tax sale lists is simple. Nevertheless, it is probably one of the most time consuming parts of tax lien investing and where most students hit the brakes and quit. It can be tricky working with counties.
Finding Tax Sale Lists
The first thing to do is find out where the county sales are occurring. You can do this by looking on your website in the auction calendar or the state reference material. Once you know when the sale is happening and decide to get the list from the county, you would call to request the list. They will send it out or describe how to get it from their website.
Another way to find tax sale lists is via the newspaper. This is pretty archaic, but is still practiced all over the U.S. Even if a county posts the list online, they may also post it in the local newspaper. If the county only posts the tax sale list by newspaper, you are in trouble. If you live in the county, it is not too bad, but if you are investing from outside the country, you may need to consider moving on to another county. You would have to get the newspaper from the distributor.
You can also get it from our website. The calendar is updated at the beginning of every month with new events. The new lists are uploaded to the site to download, making the process simple. You should be comfortable with our website by now, so I will show you how to find county websites on your own. You can search Google for the county you are interested in. Investors prefer to find counties through Naco.org. It links to all counties and provides good information.
NACO.org Marketplace Pro Software
Go to About Counties in the top left corner and select the state you are interested in: Arizona.
NACO provides a lot of information about the state and counties. It shows a map of the counties, when it was founded, the county seat, square miles, and the population. The population is useful because it largely determines the size of the tax sale and potential competition levels. Then you select a county: Mohave. After selecting a county it shows the county’s population trends and contact information for elected officials. Click on the link to Mohave County’s website.
This is where some students get hung up. Every county website is different so it can be tricky to find the right department and the tax sale list. Some are easier to navigate than others, but most have the same general pages and tabs, so we try to follow the same pattern. Most county websites have a search tool, county services, elected officials, and department listings, but we do not care about most of this. We care about two offices: The office that handles the tax sales and the office that does the property records and assessments. Typically, the treasurer’s office handles tax sales and the tax assessor handles the property records and assessments. This is pretty standard across all counties. You use the assessor page to research each property you want to invest in. You would find fair market values, assessed values, images of properties, owner information, and other information that is especially useful during your due diligence.
Another example: Riverside County, California. This time try using Google search. Go to Google.com and search for “riverside, ca county.” Once you get to the website find the treasurer or tax collector and look for keywords like property taxes, tax sale, property tax website, delinquent parcels, county held certificates, delinquent taxes, etc. There is a link that says Property Tax Website. Click on that. On the left side you will see a bunch of information including tax sales. You may want to take a look at results from a previous sale if you are interested. The easiest way to find tax sale lists is through our website, but it is great to know how to do it on your own.
Marketplace Pro Software
A great deal of the success you can derive from tax lien investing has to do with locating diamonds in the rough. With Marketplace Pro software, you can quickly and easily identify properties offered in county auctions. You can learn more about Marketplace Pro by contacting us today and scheduling a demonstration.
