Q: A few of my friends and I are about to graduate from high school and we are looking to purchase a house. We are thinking about finding one where we could get by paying the back taxes. What should we look out for? Thank you.
A: First, check to see at what age you can buy real estate in your state. You might have to be at least 18 years old to buy the house.
Next, I admire your pluck, but how are you and your friends going to pay for this property? Do you have jobs? Are you going to college? Are your parents going to be paying for this and co-signing on any loan you need to obtain? Do you have enough cash to buy the home? At age 18 you can’t have much of a credit history or credit score. You’ll need a credit score of at least 660 in order to get financing, if you need it. (The credit score requirements may be lower with an FHA loan.)
Let’s assume you have the cash you need and don’t need financing. You would go to the tax collector’s office (or in some counties, the local courthouse or other agency that sends out tax bills and collects real estate tax receipts) and get a list of properties that are delinquent in their taxes.
When property owners fail to pay their real estate taxes, the local governmental agency has the right to sell and auction off the home for those unpaid taxes. Normally these properties are sold at a tax auction.
At the tax auction, you would bid on these properties. If you win, you pay all the back taxes that are owed on the property. But you would not become the owner of the property at that time. The property owner typically would have an additional period of time (usually one or two years) in which to pay the taxes that are owed. If the owner pays these taxes off, you would get paid what you paid for the property, plus a rate of interest set by the local governmental agency.
If the owner comes through even on the last day of the redemption period, you’d pocket your cash and the interest, but you’d be out of luck in owning the property. But if the property owner or the property owner’s lender fails to redeem the taxes, you would become the owner of the property and the local governmental agency would issue a deed for the property in your name.
In the meantime, you generally don’t get to live in the property. These properties aren’t necessarily abandoned. They’re just sold for back taxes. If you and your buddies are looking for a place to live after graduation, this probably isn’t the right move.
If you’re interested in buying a property that has been foreclosed on, you’ll need to find a good real estate agent who knows about these properties and can help you identify one that meets your needs. Unless there are a lot of you going in on this purchase, you’re going to need some sort of cash and financing. Be sure you’ve lined this up ahead of time.
Finally, you’ll want to engage the services of an excellent real estate attorney who can walk you through the process and hopefully help you avoid some of the larger potholes.
May 15, 2008.