Tax Deed Sale

Real estate taxes are considered delinquent if not paid within a specified period of time. If the taxes are not paid, after legal requirements are met (such as giving proper notice to the property owner as well as others holding an interest in the property, or by filing required action in the courts), the property is offered for sale at public auction.

The minimum bid is generally the amount of back taxes owed plus interest, as well as costs associated with selling the property. In the event the property is not purchased, the title reverts to the government. The government may then attempt to sell the property at a public auction and/or offer it for sale in a private transaction.

In most cases, the jurisdiction will only provide a quitclaim deed at the sale, which is usually insufficient for title insurance. Therefore, a “quiet title” action must be filed in court to obtain an insurable title.

Some jurisdictions allow a “redemption period”, whereby the former owner has a specified amount of time to reclaim the property by repaying the amount bid at auction plus a penalty. For example, Texas allows a 6-month period in most cases, with a flat 25% penalty to be added to the amount paid at sale (for agricultural and homestead property the period is 2 years and if redeemed in the second year the penalty is 50%), while Tennessee allows a full year, with a 10% penalty. As such, purchasers of properties at tax deed sales are cautioned not to make major improvements on the property until after the redemption period has expired.

Other jurisdictions do not allow a redemption period after-sale (for example, Florida). However, the prior owner can still attempt to challenge the validity of the tax sale, for example by claiming that proper notice was not given.

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