Tax Sale Properties – A Great Deal?
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So, you just bought a nice little house in the country for $2,000 at the county tax sale. “Wow!” You think. “I can’t believe I bought this property for next to nothing! What a deal!!!” Did you really get a great deal? Maybe…or maybe not.
A Southern Indiana tax sale buyer paid several hundred dollars for land in a tax sale a few years ago and paid a “consultant” several hundred more dollars to help finish the purchase. The consultant misunderstood the tax sale law and failed to notify the prior owner about the tax sale properly. The tax sale buyer may have lost the land and the large consulting fee.
Indiana counties offer thousands of acres of land each year for sale to the public at tax sales. The counties auction land to recover annual property taxes that the previous land owners have failed to pay. The auction proceeds pay the past due real estate taxes.
Tax sale law is very complicated and misunderstood. Many new buyers think they can buy land and receive deeds for their new land at tax sales. However, the county will give the buyer a “tax sale certificate” at the tax sale, instead of a deed. The buyer must complete much work before the county will provide a deed.
The buyer must make a list of each person having “a substantial interest” in the real estate. This list includes the prior owner, who lost the property on tax sale, and certain creditors, such as banks holding mortgages and judgment lien holders. For a few hundred dollars, a title company can study the real estate records at the courthouse.
After purchasing a title search, the buyer needs to hire an attorney to examine the title search report, prepare a list of all the people having a “substantial property interest of public record” in the real estate, and send a “Notice of Sale and Redemption Period Expiration Date” to each person on the attorney’s notice list. Indiana’s notice law sets out 15 different statements that must appear in the notice. The notice must be sent by certified mail. If the notice is unclaimed, undeliverable or refused, the notice may be published three times in the local newspaper (sometimes a sizable expense). Inadequate or late notice may destroy the buyer’s tax sale purchase.
Any person may “redeem” the real estate at any time within 1 year after the tax sale. The redeemer must pay money to the county and restore the real estate ownership back to the prior owner. The redemption price must include the amount of the tax sale price and a reimbursement of the expenses paid by the tax sale buyer with interest.
If no one redeems the real estate after 1 year has passed, then the buyer must petition the court for a tax deed and send another notice. The buyer must give notice of the petition to the people listed on that notice list. If no one objects to the petition within 30 days after the petition is filed, then the court will direct the county auditor to issue a tax deed to the buyer.
The tax sale purchase may still be a good deal, even after the title search fees, attorney’s fees, certified mail fees and newspaper publication fees, but there is 1 more catch. Many title insurance companies refuse to insure title that includes a tax deed because too many buyers (and many attorneys) do not complete the statutory requirements correctly. Therefore, if the buyer wants to sell the property or get a mortgage loan on it, the title insurance company may require the buyer to file a quiet title lawsuit against the people on that list. A quiet title action is a lawsuit against everyone who may hold a claim on the real estate and it seeks the Court’s declaration of clear title. Quiet title actions usually cost several thousands of dollars to prepare and complete.
Tax sale buyers should purchase carefully. A tax sale property may be a great deal…..or maybe not.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.
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