Tax Deed

What Is a Tax Deed?

The term "tax deed" alludes to a legal document conceding ownership of a property to a government body when the owner neglects to pay any associated property taxes. A tax deed gives the government agency the authority to sell the property to collect the delinquent taxes. When sold, the property is then transferred to the purchaser. These transactions are called "tax deed sales" and are typically held at auctions.

Grasping a Tax Deed

A property tax is any tax paid on a piece of real property. Taxes are assessed by the municipal government in which the property is found and paid by the owners of real estate. There is implied understanding that owners of real estate property are responsible for paying property tax assessments.

The taxes collected are utilized to fund different municipal programs, for example, water and sewer improvements, law enforcement and fire service, education, road and highway construction, public workers, and different services. Property tax rates change by jurisdiction.

At the point when property taxes are left unpaid, the taxing authority might sell the property's deed or title — and in this way, the property — to recover the outstanding taxes. The taxing authority — normally a district government — must go through a series of legal strides to procure a tax deed. These means differ with nearby and municipal laws however incorporate informing the property owner, applying for the tax deed, posting a notice at the property, and posting a public notice of sale.

What Is a Tax Deed Sale?

In a tax deed sale, the property with the associated delinquent property taxes is sold. The sale happens through an auction with a base bid of the amount of back taxes owed plus interest, as well as costs associated with selling the property. The highest bidder wins the property.

The tax deed legally transfers ownership to the purchaser on one condition: The new owner must frequently pay the whole amount owed inside 48 to 72 hours, or the sale is canceled. Any amount bid by the triumphant bidder in excess of the base bid might possibly be dispatched to the delinquent owner. This relies upon the jurisdiction.

The original owner might relinquish this excess amount in the event that they don't claim it inside a predefined period of time. In California, for instance, claims must be filed in no less than one year, while the cutoff time in Texas is two years. In Georgia, funds can be claimed as long as five years after a tax deed sale, at which point a court order is required to recover excess funds.

A few states have a redemption period during which the original owner might pay back their tax debt and reacquire their former property.

Special Considerations

While certain states sell the title to the triumphant bidder the day of the tax deed sale auction, others will permit a redemption period during which the original owner has an opportunity to repay their tax debt and reclaim the property. Assuming the owner decides to pay their debt obligations inside this period, they must pay the triumphant bidder the amount bid at the auction plus interest, which can be very high.

Be that as it may, assuming that the redemption period passes, the owner actually doesn't reclaim their property deed, the highest bidder gets an opportunity to foreclose on the property. The redemption period in Idaho, for instance, is 14 months, while owners in Iowa have one year and nine months to reclaim their property.

Tax Deeds versus Tax Liens

Tax liens are like tax deeds, however there are a few unpretentious differences. While tax deeds transfer ownership of the property itself to another party, tax liens are a legal claim against the property when the taxes aren't paid. Tax liens give a moderately cheap investment to investors with a guaranteed return. Liens can cost anyplace from a couple hundred to two or three thousand dollars and pay simple interest that builds consistently.

The lien interaction starts government body places a lien against a property on the off chance that its owner defaults on their property taxes. These liens, which keep owners from doing anything with the property, including refinancing or selling it, are sold off at auction instead of the property itself. Interested gatherings can invest in these tax liens by bidding for them. The return depends on a maximum rate of interest permitted by the municipality.

At the point when a property owner defaults on their property, the municipality sends a notice informing them concerning the forthcoming tax lien. In the event that the owner doesn't bring the taxes cutting-edge, the tax lien is then put available to be purchased. The lien is transferred to the highest bidder, who pays the outstanding tax amount to the municipality. To eliminate the lien, the property owner must pay the new lien owner the outstanding amount plus interest.

Foreclosure auctions are regularly directed one time each year. For instance, 2022 foreclosures in King County (Seattle, WA) won't happen until September 2023.

Illustration of a Tax Deed Sale

Expect the value of a property in a tax deed sale is assessed to be $100,000 and has $5,700 in back taxes. The highest bid on the property is $49,000.

The province will take $5,700 from the bid amount to cover the property taxes due, and the remainder will be paid to the original owner. In this model, $5,700 is dispatch to the district and $43,300 ($49,000 - $5,700) is transmit to the original owner.

The bidder gets title of the home and an equity profit of $100,000 - $49,000 = $51,000.

Highlights

• A tax deed awards ownership of a property to a government body when the owner neglects to pay the associated property taxes.
• At the close of the auction, the province receives the total delinquent tax assessment, and the former owner receives the net proceeds after taxes and punishments.
• Tax deeds are sold to the highest bidder at auction for a base bid of the outstanding taxes plus interest and the costs associated with the sale.
• Effective bidders have a base amount of chance to pay for the buy — normally 48 to 72 hours.
• Property owners might file a claim to receive any amount paid to the municipality in excess of the property taxes plus interest.

FAQ

What Is the Difference Between a Tax Deed and Tax Lien?

A tax lien is a legal assignment that one party has rights to collect proceeds or value from a property. All liens are subsequent rights to receive value from an asset. A tax deed is the full conveyance of the title of a property due to property tax delinquency.

What Happens If I Do Not Pay Property Taxes?

Property taxes are authorized by municipal government bodies and are legal obligations for claiming real estate. By not paying property taxes, the government has the privilege to hold onto your property, claim rights over proceeds to cover their owed obligations and discard a property to another owner. The rules around this tax deed process fluctuates between government substances.

How Do I Clear a Tax Deed?

A tax deed or tax deed sale emerges due to unpaid property taxes. On the off chance that all tax obligations are cleared and associated punishments, interest, and fees are paid, a tax deed will frequently clear prior to auction and stay with the original property owner.