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Article of the Month for January 2004 Printer friendly version

California's Tax Lien Sales

About 15 years ago, for two years in a row, we attended our annual delinquent property tax auction here in San Diego County. That experience convinced us that the chance of getting a really good deal at such tax lien sales was too remote for all the work involved. We checked it out again last year and came to the same conclusion-it's too much work for such slim odds.

Property tax auctions are so widely known and attended that one must arrive about 45 minutes early to get a seat inside the main meeting hall. If you arrive any later, then you'll be part of the overflow crowd that spills out into the corridor leading to the main hall.

Needless to say, such a huge audience makes it very unlikely that one could "steal a deal" out from under the noses of so many other attendees.

But let's say that you found a good deal and outbid your competition. What lots of people don't seem to remember, even though it's announced at the auction site and mentioned in the tax sale inventory booklet, is that a buyer will not be able to resell or refinance any property they buy at a tax lien sale for at least one year. That's because no title company will insure the title of such property for at least one year afterward. So, in spite of being able to pay 10% of your high bid at the sale and the balance 30 days later, be prepared to pay all cash up front because the extra 30 days won't help you (unless you're raising money from a private party that won't require a lender's title insurance coverage and won't mind the one year+ holding period before being able to get title insurance for a refinance or resale).

Here's the routine necessary to prepare for a property tax lien sale:

  1. Buy the tax collector's booklet or check online for all the properties scheduled for sale.
  2. Cross off all those listings that have been redeemed. Then check each week for any new redemptions before beginning to do any research or viewing any particular parcel. Some counties (viz. San Diego, Orange, etc.) post their tax sale parcels, redemptions, etc. on their web sites for your convenience.
  3. Cross off all those properties that don't meet your criteria. For example, you might not want any timeshare, landlocked property, special use building, remote acreage, etc.
  4. During the final week before the tax sale do a drive-by of every property that's still on your list and cross off those properties that don't pass your "look" test.
  5. Generally real property taxes are the most senior lien on a property. So a tax lien sale usually wipes off all other liens, leaving the property free and clear. However, because there are some exceptions to the general rule (see California Revenue & Taxation Code 3712-3713), you should do a record title search for each selected parcel at the recorder's office, to be sure you're aware of any excepted liens (i.e. IRS tax liens, etcetera).
  6. Compute a separate, maximum bid for each tax parcel you would like to buy.
  7. Make your final deletion of any new redemptions the day before the scheduled sale.
  8. Total all the maximum bids you're prepared to make at the auction. Get cashier's checks made payable to yourself in a "doubled-up" progression of checks. Start with $1,000.00 and double the amount of each successive check until you reach your maximum total.
  9. Register with the auctioneer before the sale if you intend to bid. You might have to fill out a few forms beforehand, pay a small fee and get a bidder's paddle.
  10. Finally, you will have to indicate in advance how you want to take title to the property if you are the highest bidder. By all means put it into a title holding trust.

Information provided by this website is for informational purposes only and is not a substitute for professional advice. Please consult your investment advisor and/or attorney before entering into any transaction. Read our privacy policy.

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