What Is A Tax Sale And How Does it Work?

A tax sale is a public auction of properties that have delinquent property taxes. In other words, the owners have failed to pay their property taxes. In this type of sale, the government or municipality that collects property taxes will sell the property to recover the unpaid taxes. This article will discuss how tax sales work on Louisiana, and specifically Orleans and Jefferson Parish.

Here’s how it typically works:

  1. The local government sends a notice to the property owner informing them of the unpaid taxes and the intent to sell the property at auction. Many municipalities will skirt the edge when sending these notices, in this authors opinion. They will make it sound as much as possible that the property owner will lose their property on the date the auction occurs. This is not the case and we will discuss this further.
  2. The notice is usually sent several times, and if the owner fails to pay the taxes by a specific date, the property will be scheduled for a tax sale.
  3. The property is listed for auction, and interested buyers can bid on the property. The minimum bid is usually the amount of unpaid taxes, interest, and any associated fees.
  4. It used to be that the highest bidder becomes the new owner of the property. That changed some years back. Now they don’t bid up the dollar amount you are paying for the tax deed, they bid down the ownership interest the tax deed encumbers on the the property. Whoever is willing to bid the percentage down the lowest becomes the winning bidder. The winning bidder is now the tax deed holder but effectively just a lienholder on the property.

In some cities and states, when your property goes to tax sale the tax sale purchaser immediately becomes the owner of the property. That is not the case here, even thought the notices the city sends make it sound that way. When a property goes to tax sale, the owner has 36 months to redeem the taxes (18 months if the property is deemed blighted). If the owner fails to redeem the taxes within the redemption period, then the tax sale purchaser can file a lawsuit to quiet the title and take possession/ownership of the property.

This is where the ownership percentage that gets bid down comes into play. If I have a 50% tax sale that I won because I bid the percentage down to 50%, then if my tax deed goes beyond the redemption period and I file suit to take ownership and am successful, I only become a 50% owner. If I wanted to sell the property and the other owner did not want to, I would have to file another lawsuit to force a sale. Like everything with Louisiana law, its complicated!

It’s important to note that the property may have other liens or encumbrances on it. Anything you consider bidding on, you should have the title checked. There may be IRS liens or a mortgage…could be anything. Additionally, the new tax deed owner assumes responsibility for future property taxes, maintaining the property, etc.

It’s also important to discuss insurability of your title when you acquire a property through a tax sale. Because of some LA supreme court rulings that happened about 10 years ago, which gave the original owners recourse against tax sale purchasers, the big title insurance companies still won’t write insurance policies on properties acquired in this manner. There are some that will, so there is hope. You just may wanna double check before you make any moves.

Tax sales can be a way to acquire properties at a lower cost, but buyers should do their due diligence to ensure they understand the risks and potential liabilities associated with acquiring a property through a tax sale. If you are not clear on things, get with a local title attorney and they should be able to explain exactly how things work in your area, regardless of where that may be. There is very low risk when investing in tax sales. They cannot be wiped out in a foreclosure so at some point you will get your money back plus interest and penalties. There is just no guarantee as to when.

Do you have a property tax issue you wanna discuss? Give us a call at 504 264 1407 or head over to our website, www.nolabuyshouses.com.

Good luck!

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