Q: I have a question regarding quitclaim deeds. I am aware that all states have different ways of interpreting law.
I also understand that any information you provide me may or may not be applicable to the state in which I reside. However your opinion is much appreciated.
My question is in regards to a quitclaim deed obtained through public auction for delinquent taxes. In New Mexico, there is no “Right of Redemption” period other than the 120-day federal IRS redemption period. Also, in the New Mexico State statutes it reads that former owners may challenge the transfer up to two years after the claim, but they must prove that either the property was not subject to taxation for the tax years in question, the tax authority failed to mail the tax notice, all taxes were paid prior to the sale, or that an installment agreement for the payment of taxes was agreed to prior to the sale.
If I were to purchase a home at public auction and was issued a quitclaim deed for a particular piece of property, how difficult would it be to obtain clear title to the property, and what would the process look like?
I am aware that the property may have other liens, mortgages, other owners, or other issues. But if I research the title prior to purchasing the property and find that there is no other interest in the property other than the owner who was behind in the taxes, would that mean the deed would convey title to me free and clear?
A: The process of obtaining title to a piece of property is very much a question of local action and laws. In essence, most local governments want to make sure they get their real estate taxes paid. When a homeowner fails to pay these taxes, the local governmental body can sell off the property to satisfy the amount due.
The process can at times be cumbersome, convoluted and tricky. But if a buyer at a tax sale has done his or her homework, that tax buyer can end up owning a piece of property for a fraction of the true value.
In many localities, a homeowner has certain protections before he or she loses his or her property due to the failure to pay real estate taxes. The local governmental tax office will generally have to send various written notices to the homeowner, will have to publish a record of properties that are delinquent in their payment of real estate taxes. After that, a certain period of time must pass before that homeowner loses his or her home.
In some states, the period of time before the homeowner loses the home is called the right of redemption. This is a time in which the homeowner can redeem all outstanding real estate tax charges against the property before someone else can truly call the property his or her own.
You are correct: before undertaking this process in your state you’d be wise to know all that might or does affect the title to that property. If you get a quitclaim deed from the taxing authority, and the title to the home is clean (no mortgages, liens, easements, and other claims to the home), and all of the homeowner’s rights and opportunities to get back or redeem the property have expired, you would be the rightful owner of the property for whatever you paid the local authority for the home.
In some states, there are generally many buyers bidding for a piece of property. If they all have the same information, the home price could get bid up substantially. You might get a bargain, but then again, you might not.
Some states have an additional wrinkle to the tax auction method in that they require the delinquent homeowner to pay interest on the amount of taxes that is owed. That interest factor can be many times higher than what a bank would pay.
The buyer of the home at auction can “buy” the home with the hope that the owner actually doesn’t want to lose the home and actually finds the cash to pay all outstanding taxes plus the interest owed. When the homeowner pays that interest, that money gets paid to the tax buyer from the date of the sale.
If the interest rate is 18 percent per year, when the taxes are redeemed, the tax buyer will receive a return of 18 percent per year on his or her money. That’s not too bad a deal. If the taxes on the property aren’t redeemed, the tax buyer who put up the cash to pay the tax bill will then own a new piece of property.
In some states, tax buyers work the system to either make money on the interest or with the hope of actually getting the piece of property. You would be wise to invest time into understanding the workings of real estate tax sales in your state by attending tax sales and talking to people who specialize in purchasing these types of properties.
As you have already picked out a specific property, you can investigate the legal ownership of the home and even have a title company issue a report on the status of the title. If you’ve done your homework and win at the tax auction, you could end up owning the home and getting exactly what you anticipated.
But be careful. This particular road can be tough for the inexperienced real estate tax buyer.
Published: Nov 1, 2007
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