Bidding at the Tax Sale?  Let the Buyer Beware.

 

            Adventurous real estate investors often look to the annual tax sale for lucrative properties.  Missouri law requires the county collector to offer properties with delinquent real estate taxes for sale each year.  Tax sales are held on the fourth Monday of August, and at least two years’ worth of taxes typically have to be unpaid for a property to be offered for sale.  For three consecutive weeks prior to the sale, the collector will publish a list of properties eligible for sale in a local newspaper.  Most county collectors will also make the list available on their respective web sites. 

            On sale day, the minimum bid for a property is the amount of outstanding taxes.  If multiple bidders are interested, the highest bidder wins, with the outstanding taxes paid to the collector and any excess deposited into county treasury.  Payment is typically due, in cash or certified funds, by the close of business on sale day.  Winning bidders who fail to pay will be subject to a penalty equal to twenty-five percent of the winning bid. 

            The winning bidder generally does not receive a deed to the property upon payment but rather a tax sale certificate.  This is because the owner of the property has up to one year to redeem the property by paying the outstanding taxes, thereby reimbursing the winning bidder for his payment.   The winning bidder is obligated to notify the owner, as well as others with an interest in the property (e.g. mortgage holders), of his right to redeem by sending notice in the manner prescribed by Missouri statute. If, after receiving the required notice, the owner fails to redeem the property, the winning bidder may request a collector’s deed to gain legal title to the property.  Some county collectors publish a detailed guide to this procedure. See, for example, https://greenecountymo.gov/collector/tax_sale/.

            The process described above, complicated as it is, is the easy part.  The hard part is choosing what properties to bid on.  Armed with the list of properties on offer, do some research.  If the property is a home, is it occupied?  If so, consider the cost of insuring the property during the redemption period and of evicting the occupants.  Is the property in compliance with local code governing safety and cleanliness?  Are you willing to cut the grass for a year and maybe spend more money to avoid having the property condemned?  Is the property a condominium or in a neighborhood with a homeowner’s association?  If so, you may be purchasing the obligation to pay delinquent condominium fees or HOA dues.  If the property is a vacant lot, does it have access to utilities?  If not, how much would it cost to gain access?  Is the property contaminated with any toxic substances? Keep in mind that some properties go to tax sale because the owner wants to get rid of, or at least stop paying for, a problem.  You should also consider that a collector’s deed will not immediately give you marketable title to the property.  To get marketable title, you will need to file a lawsuit to quiet title to the property.  This is often a formality, but it takes a few months and necessitates the hiring of an attorney. 

If the amount of unpaid tax on property is low enough, and the property does not have a lot of costly issues, great deals can be had at the tax sale.  That said, proceed with caution.

This article appears in the August issue of Parade of Homes magazine, which can viewed at https://paradeofhomesbranson.com/parade-of-homes.