Understanding Tax Deed Investments
Tax deed investing is buying the title to real estate that has been sold by the government for nonpayment of taxes by the property owner. The owner of the tax deed now has the rights to the debt that is related to that property. If the homeowner pays the back taxes and any interest, it goes to the owner of the tax deed, or the property owner does not pay the taxes to get caught up in a certain time frame, then the owner of the tax deed can take possession of the property at a fraction of the market value.
At The PIP Group we look for the right opportunities to purchase tax deeds at government property auctions to generate successful passive real estate income opportunities for our clients.
Things to know about investing in tax deeds:
- May require judicial (court) involvement to obtain title
- May obtain title directly from the auction
- May need to quiet the title to clear other liens
- May need to wait a certain period of time before taking possession (Hybrid States)
As its name suggests, a Tax Deed is what you get from the default judgement of unpaid property taxes. Tax Deeds come in various “clarity,” depending on the state of your investment. By “clarity,” we mean there could be additional issues clouding the title. It could be something as simple as a lawn mowing lien for $50 or an IRS lien for $150,000.
Let’s look at some of the variables by states:
Illinois requires what is a called a “prove up hearing.” It might as well be a quiet title actions, because that is essentially what it is. The process to get the deed is lengthy and thorough. Throughout the process, it exposes issues such as IRS liens or other clouds that must be dealt with, before the Order for Deed is conveyed. Once conveyed, the title is a clean as a Warranty Deed.
Georgia is what we commonly refer to as a “Hybrid State.” Hybrids are tax sales where a tax deed is conveyed at the sale, but it still acts just like a lien. There is a redemption period you must wait through and, after a year, you still have to foreclose the right to redeem and go through a judicial foreclosure process.
Kentucky and Ohio
The deeds conveyed in these states are essentially “very clean” as we say. That is, they are nearly as good as a Warranty Deed and titles are insurable “as is.” There may be some small liens that need to be paid, like lawn maintenance; but, for the most part, these titles are very sellable “as is.”
Florida is a very unique state in itself. You own the lien from a tax sale and then you need to do what is called a “Tax Deed Application,” The county does a soft notification and title search, lists the property for auction in a Tax Deed sale, and unless you are the highest bidder in that auction, the lien is essentially redeemed and the highest bidder at the auction gets the deed. Florida deeds are usually pretty dirty and always will require either a title certification or a Quiet Title Action. For more information on what a title certification is, you can visit a couple of the title certification experts we work with, below.