Purchasing tax deed properties offers real estate investors a great way to obtain desirable properties at a price usually much lower than market value. While these properties present great investment opportunities, it’s important for investors to realize the risk associated with purchasing real estate in this manner. One common issue with tax deed purchases is a blemished or clouded title.

There are limited ways through which investors can obtain title insurance when purchasing property at tax deed sales. Understanding the pros and cons of each will help you make better investment decisions in the future.

Tax Deed Sales Defined

A tax deed sale happens when the owner fails to pay property taxes. Properties are offered for sale at public auctions as a way to collect the outstanding taxes owed.

These taxes are pivotal to the livelihood of any town or county across the country as they fund schools, infrastructure, law enforcement, etc.. In most cases, the tax lien is a higher priority than other existing liens on the property and the other liens will be extinguished at the time of purchase.

For example, since mortgages are lower priority than taxes, the mortgage will be extinguished and will not become the new owner’s responsibility. This differs from a normal, retail real estate purchase transaction between two parties.

During a normal retail purchase, a release from the mortgagor would need to be recorded to show that the mortgagor’s interest in the property has been satisfied. Since this does not occur during a tax deed sale, a “cloud” on title is created and is one of the reasons obtaining title insurance is difficult.  

Tax deed sales may come with other liens and/or encumbrances on the property which can be found by researching the current title history, or chain of title, of the parcel prior to purchasing.

Tax Deed sales are a BUYER BEWARE sale and some liens are not extinguished from title such as municipality liens (i.e. code enforcement, special assessments, trash, water, sewer, etc.).

While these debts are not your own, purchasing the property and inheriting the title makes you financially liable to repay them.

Oftentimes, an investor is unable to turn these services on until they are paid what was owed before the tax sale. Throughout most of the country, these municipal liens will show up on some sort of limited title search or O & E report (Owners & Encumbrances).

However, there are some states such as FL where a separate municipal lien search is needed in addition to an O & E report since these liens do not need to be recorded on title to be enforced.

You can always call each individual department for payoff amounts as well. Sometimes the levying authority will work with you but sometimes they will not; so be sure to do your research and ask the correct questions.

This is an important and often overlooked step so please do not take this lightly and ask around to your county, town or municipality,  local investor network or title company. 

Selling A Tax Deed Using a Quit Claim Deed

Before we dive into how to make title insurable for properties obtained through tax deed sales, it is important to know that you can sell or convey your tax deed property without clearing title with Tax Title Services or a Quiet Title Action. You would be selling the property in “as is” condition, essentially “wholesaling”, and the property would be conveyed with no warranties to title. Since you will most likely have to convey the property via quitclaim deed to your buyer, the buyer will then inherit any problems with the property. This can be an effective method if selling very low value properties but be prepared for the buyer to not offer you anywhere near market value for your property. Especially if the property has improvements i.e. a house. 

Quiet Title Actions on Tax Deed Properties

One way to ensure the title on your property is clear is by hiring an attorney and filing a quiet title action through the court system. An action to quiet title is a court case that names all parties holding an interest in the property at the time of the tax deed sale as Defendants, and they are given an opportunity to challenge the sale at the time of hearing. If there are no challenges, the court will offer a judgment in favor of the tax sale purchaser which legally extinguishes all prior parties / defendants from holding any further interest in the property.

Quiet title actions have been around the longest so naturally they are the most recognized solution curing title defects. When doing research if you ask most local realtors, title companies or lawyers; a quiet title action will probably be recommended. Actions to quiet title are effective, however, they can become quite expensive. Additionally, they can take up to a year to complete as the case often becomes subject to countless attorney and court delays. 

Whether it be carrying costs or additional atty fees, if the quiet title is taking longer than expected the investor is losing money. When investing, delays cost investors dollars.  

Title Certification for Tax Deed Properties

The alternative to a quiet title action is title certification through Tax Title Services. In the majority of all tax deed states, there is not a law or statute that states a quiet title action is required to obtain title insurance.

In most cases the cloud on title is clear by a state’s statutes. But whose job is it to verify those statutes have been met and both the investor and underwriter are not going to be subject to a loss or claim against title by a prior party of interest? 

The tax sale specialists at Tax Title services will review and verify the completeness and accuracy of the tax sale foreclosure process and upon verification, Tax Title Services will partner you with a title insurance agent who will be willing to provide title insurance. 

Over our 20 yrs in business, Tax Title Services has qualified over 45,000 tax sale properties for title insurance. Our vast expertise and nationwide coverage will create a seamless transaction for any investor. This alternative is much less expensive than filing an action to quiet title, and the entire certification can be completed in as little as four weeks! Choosing this method saves you both time and money, allowing you to have a clear title faster and offering continued protection for years to come.

Getting a Clean Title for Your Tax Deed Property

Having the ability to obtain title insurance on a tax deed property adds tremendous value and security to your investment.

Let’s review a couple scenarios of what you can do after Tax Title Services certifies your property…..

Keeping the property to live in or as a rental is something that happens frequently, you could now purchase an owners title policy that will defend your interest in the property.

What if you decided to list the property for sale? Without the ability to obtain title insurance for the buyer, you may lose significant leverage when negotiating the sale price of the property.

The Tax Title certification will create the ability for the buyer to obtain a title policy through closing which also allows the property to be conveyed via warranty deed to the buyer.

Lastly, a lender will require a title insurance policy to protect their interest. If you would like a construction loan or your buyer needs to take out a mortgage to buy the property from you or you want to take out a loan against the property – the lender is going to want a title policy which is obtainable after Tax Title Services certifies the tax sale.

When lenders encounter this issue on title during the loan process, oftentimes they will reach out to Tax Title Services for assistance. 

Tax Title Services offers customers the benefit of our unique certification process and clearing your title in no time. Our consultants perform a thorough review of the tax sale foreclosure statutes, statutory requirements and due process accuracy for your property and we partner you with nationally recognized title insurance underwriters who will provide you with title insurance in order to protect your investment.

Maximize the potential in your investment. Contact TTS to find out more about our certification process and obtaining title insurance for your tax deed property.