I’ve seen a lot of stories about individuals and families who purchase properties at a county tax sale. From time to time in California, you will see public sale notices from county assessors to sell property for unpaid property taxes. The county conducts a tax sale to recover the unpaid property taxes due on the property.
What makes these properties attractive to buyers is the low bids needed to purchase the property. Sometimes the winning bids are as low as a few thousand dollars. For those who are not experienced in tax sales, buyer beware! You could be purchasing a problem property.
Probably one of the biggest drawbacks of purchasing a tax sale property is the ability to obtain title insurance on the property immediately after you acquire it. Being able to get title insurance is a big deal, especially if you are going to be selling the property in the near future. Title companies vary widely in their policies regarding issuing a title policy on these properties. They can demand the buyer to initiate expensive quiet title actions on prior owners and interested parties or even outright deny issuing a policy for a number of years after the one-year redemption period has expired. Some title companies may issue a policy on a property conditioned on receiving a detailed analysis of the chain of title from companies that specialize in reviewing tax property records. This is to insure the sale was done legally and in a proper matter. These services are generally less expensive than a quiet title action, but if you use the service, there is no guarantee that the title company will issue a policy based on the findings. You may still end up having to quiet title to the property if, for example, the report indicates a defect in the tax sale process by the county conducting the sale.
Your best bet to make sure you don’t get burned at a tax sale is to know your objectives and the price you can spend on a property. For example, if you are looking to do a “flip” on a tax sale property, good luck. Your turnaround time will significantly be delayed. However, if you are looking for a long-term rental and you find a tax sale at the right price, you may be able to purchase the property at a significant savings and then use future rents to recapture you initial capital investment, if the rents are right.
But if you ask me, you probably would have less hassle if you just bought foreclosure sale properties. But whether it’s a foreclosure sale or a tax sale, they are not for the faint at heart. You need to learn the pitfalls, learn your markets and prices, and figure out if this type of investment is worth your while.
