Tax Deed, What is it?

What is a Tax Sale?

Tax sale is the sale of a property when the taxpayer of that property reaches a point a where he or she is unable to pay the tax payments of that property. When this happens, it does not mean that the property owner immediately loses the property. They have the right of redemption period. What is redemption period? It is the period during which the property owner has the opportunity to pay off their remaining taxes in full so that they can reclaim the property. A tax sale occurs after delinquent taxes are not paid in full.

What is Delinquent Property Tax?

Delinquent property taxes are the tax that is remains unpaid after the due date for payment has passed. In most cases, there is a penalty or interest attached to the delinquent tax. Over time, as the delinquent tax is not repaid in full, the penalty keeps increasing. The authority and jurisdiction to collect delinquent taxes likes with the state tax commission. You delinquent taxes can remain unpaid for a maximum time of 5 years after the tax default on their property. You can pay your delinquent taxes within those 5 years but if your do not pay them in full you property will become subject to tax sale.

So if you are unable to pay off your delinquent property tax during the redemption period, you will have to give up your property. This brings us to our next question: what does a tax sale on a house mean?

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What does a tax sale on a house mean?

If you do not pay off your delinquent property taxes on your house, it will go up for a tax sale and you will have to move out of the house. The house does not immediately go up for tax sale and there are a number of requirements and laws that have to be fulfilled and followed before the order for a tax sale is made valid. First of all, adequate has to be given to the taxpayer. In many cases, the property going on tax sale is the house the taxpayer is living in so ample time has to be given so the people living in that house can move out with their things. The sale is also usually open to the public so an adequate price for the property is obtained. In many cases, the price that is set for the property is at least equal to the total taxes that are owed on that property. For the transfer of the property, a tax sale certificate is required.

What is a certificate of tax sale?

Also called the tax lien certificate, this is an official document that is issued by the taxation authorities. It the proof of conditional transfer of the title of a property that has a lien (the legal right granted by the owner and serves to guarantee the repayment of taxes) on it so it can be sold for non-payment of taxes on it. If the property owner cannot repay the taxes in full within the redemption period and reclaim his property, the lien allows give the taxation authorities legal right to sell of the property. Any property that has a lien on it cannot be sold by the property owner without the approval of the lien holder, that is, the taxation authorities.

Tax lien certificates are sold off in a public auction. Most of this auction is overseen by the municipality or the county where the property is located. For a property to be eligible to have tax lien certificate ale, it has to have tax-defaulted for a minimum period of time depending of what the rules of that state are. The bidding does not take place on the amount people are willing to pay for a property. Rather the interested parties bid on the amount of interest rate that they are willing to receive. To win the auction you must bid the lowest interest rate. After the auction the winner is issued the tax lien certificate for that property.

There is often confusion between a tax lien and tax deed but the two are separate things. We will explain the differences.

Tax deed vs. tax lien

When someone has a tax lien certificate, the owner has time (the redemption period) to pay back the taxes, including the taxes, to the person who has the lien certificate, rather than paying the taxation authorities. Tax liens have some of the highest interest rates allowed by the law so this makes the purchase of tax lien certificates a very good investment. Some states have tax lien and some have tax deed.

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Tax deed state

In the states where tax deed sales are used to collect the delinquent property taxes, the local taxing authorities are not allowed to have tax lien sales. These are the states that have tax deed sales. In tax deed sales the municipality or taxation authorities will sell the property’s deed or title to the winner of the auction. This means that person wins the actual property. So rather than just selling the lien, the local taxation authorities who collect the delinquent taxes have to sell the entire property in states where tax deeds are sold. So purchasing a tax deed mean purchasing real estate and that is how tax deed sales work. There are several factors that influence the value of such an investment. But generally people buy properties through purchase of tax deeds so that they can buy a property for less than its market value. So tax deed investing means buy actual property for less than its market value.

Another important difference between tax deeds and tax liens to notice here is the amount research that needs to be conducted before the purchase can be made of either one of them. When it comes to purchasing a tax deed, you become the property owner so it is important that you conduct a thorough investigation of the property and all of its title records. First of all, you need to make whether there is a mortgage in record against the property and whether there are any other debts or liens for taxes against that property. Secondly, you also to carefully assess the market value of the property so you can determine whether or not you will have enough equity in the property to not only be able to cover all the debts and dues but to also give you some return on your investment. Third, you will also have to see the property as well and make sure that it is something worth purchasing. Whether it is a house you might want to live in yourself or a place that you can put up for rent, you should know what you are getting into.

Some other factors have to be considered as well. When you purchase a tax line certificate, it is not your responsibility to pay for any liabilities the property may have or pay any future taxes of the property that may become delinquent. Also, if it looks like the lien on the property is not going to be paid, you have the option of just walking away from your investment if you want to do so. But you do not have this freedom when you purchase a tax deed. This is because once you purchase the tax deed; you become the owner of the property. As property owner, all of the future payments related to that property are your responsibility. You have to pay any liabilities that may be related to your property ownership as well as future taxes. With a tax lien, you do not have to worry about maintaining the property. But after a tax deed investment, you have to make sure that the property is being maintained and is in good condition until you can sell it off. Tax lien investments are also more risky that investments in tax deeds, in terms of capital.

The laws and regulations for how tax deed sales work are separate for each state. So we will take a look at how tax deed sales work in Florida.

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Tax deed sales Florida

Every year in Florida, the real estate taxes have to be paid by a preset date so that they do not become delinquent. If they do become delinquent, the taxation authorities hold an auction so that the taxes can be paid off within the redemption period. This auction is known as the Tax Certificate Sale.

A tax lien certificate is issued to the bidder who wins the auction. This gives the bidder guarantee that the tax lien will be paid off completely, with interest included. As mentioned before, the tax lien certificate does not mean the property has been sold off. Rather it is proof that a lien has been issued on a property that for payment of delinquent taxes. As per the law of Florida, the taxation authorities or the tax collector has to conduct the sale of tax certificates each year starting from June 1 for the delinquent real estate taxes of the last year.

In Florida the redemption period is of 2 years from the date the taxes become delinquent. If the tax lien certificate is not paid off within those two years, the bidder who won the tax lien certificate has the right force a public auction of the property. For example, if the taxes of a property become delinquent on May 1, 2010, then the certificate holder can apply for a tax deed after May 1, 2012. The certificate holder must also pay all the applicable fees. This public auction of selling off the property if delinquent taxes have not been paid off is known as a Tax Deed Sale.

This tax deed sale has some duties which are then used to pay off the amount of taxes that are owed to the holder of tax lien certificate and whatever other costs were incurred during the process of the sale.

Before the entire process can be finalized, some important notices have to be sent out. All lien holders, such as the mortgage companies, have to be notified of the tax deed sale and the legal titleholder of record has to be notified as well. According to Florida Statute 197.522(4) (h), owners of lots that are connected to the property with the lien tax certificate have to be informed of tax deed sale. The person who is listed in the statement given by the tax collector must be notified by certified mail by the clerk of the circuit court.

These notice requirements are mandatory. If they are not followed to the letter, it will be a violation of the due process. This may make the tax deed sale invalid. Therefore, in case of any change in address, it is important for the property owners to inform, in writing, the office of the tax collector. If property owner do not do that, they may not receive notice of tax deed sale and you could end up losing your property. Once the taxing authorities receive your writing of change in address, they will be responsible for updating your address, mail and contact information. If, for some reason, the mailed notice of the tax deed sale to the property owner comes back unclaimed, it the responsibility of the state to take additional steps to try to reach the reach the property owner and inform him of the tax deed sale before it happens. In most cases, the tax deed cancels out liens.

Tax deed auctions online

Tax deeds sales also take place online. The bidder has to register to view and to be able to bid on any of the tax deeds that are currently scheduled for sale

 

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