When investing in tax liens and tax deeds, one of the most common questions I receive is “can you sell a tax deed?”
This is a loaded question that many seasoned investors fuddle with and is often miscommunicated to realtors, lenders and potential third-party buyers during a transaction.
I cannot begin to tell you the number of phone calls I have received from realtors who were advised that their client cannot sell a tax deed.
That statement is both wrong and right at the same time.
If I were to ask you, can you sell me a Meyer lemon? And you replied, yes. I would expect nothing but a Meyer lemon.
What if the Meyer lemon was from California or Florida? Does not matter as long as it is a Meyer lemon. What if I pay for a Meyer lemon and you give me Lisbon lemon? Lisbon lemons are the most common type of lemon at the grocery store but it does not matter, I paid for a Meyer lemon and expect nothing less.
The agreement states that I am owed a Meyer lemon, nothing different. Not just any lemon. There is a difference.
If you ask me, can I sell a tax deed? The true answer is no because to sell a tax deed, a buyer will expect to receive a tax deed.
A private citizen cannot sell a tax deed. A tax deed by definition can only be used as conveyance by a government body.
If you were to buy a property off MLS that does not have any type of foreclosure or tax sale in the chain of title, what would you say to your realtor? Hi, I would like to buy this General warranty deed? Probably not.
This tedious terminology is where the question of can I sell a tax deed, becomes somewhat convoluted, and can be troublesome for investors that do not truly understand real estate terminology. Let’s dissect this so you can be clear and concise when communicating the terms on the sale of property you obtained through delinquent county tax sales.
In my first question about lemons, had you only offered to sell me a lemon, any lemon would work. The same principle applies with properties obtained through tax deed sales.
An investor cannot legally sell a tax deed, but they can sell their real property which was conveyed to them by tax deed.
A tax deed is a form of conveyance that shows ownership of real property and is a recorded instrument from the county to a third-party investor.
Therefore, an investor can sell their property however, they cannot convey the property as a tax deed to another party, individual company, person, or anyone for that matter.
Where does this leave the investor who obtained a property through a tax deed sale?
Typically, when a property is sold through tax sale, investor options are limited when it comes to conveying the property to a new buyer.
This means that the owner of the property(tax deed investor) is responsible for any and all liens and encumbrances on title.
It does not matter if they were there before you, you are now responsible.
Another form of deed without warranty is a quit claim deed and this is a very common form of conveyance used when tax deed investors sell their property.
Since a quit claim deed is a deed without warranty as well, all liens, encumbrances and problems with that property are now passed to the new owner.
When investing at tax sales, many liens and encumbrances are extinguished by the tax sale so some investors are okay with taking the property without protection from past liens and encumbrances.
A General Warranty Deed is a form of conveyance typically used in real estate transactions that warrants title, this guarantees the grantor is the owner of the property and conveys and transfers the property to a new owner with no issues.
This protects a buyer from any claim or challenge against their right of ownership to the property. The protections offered to a buyer in a warranty deed are typically covered by a title insurance policy.
How does an investor take a property obtained through tax deed and sell it with warranty protected by title insurance?
Let’s recap….A tax sale foreclosure, resulted in the conveyance of a tax deed from the county to an investor.
The investor now owns real estate (property).
If the investor wishes to convey their property via a General Warranty Deed protected by title insurance to a prospective buyer, the investor will need to “cure” the “cloud” from the tax sale in the chain of title (your chain of title is where all the recorded conveyances are located at the county).
An investor can always convey the property directly to a buyer via Warranty Deed without “curing” title; however, the seller will be responsible for any challenges against the buyers ownership interest in title.
The buyer will also have difficulty sourcing financing since there is not an insurance policy protecting the chain of title and no lender using government back loan products will accept this.
Historically the only way for investors to cure title has been through a quiet title action but the quickest and most cost-effective way is actually through the Tax Title Services certification process.
Once TTS issues its certification, title companies are willing to provide title insurance to any prospective buyer in a transaction.
An investor who purchased a property at a tax deed sale and obtains a TTS certification can sell their property and convey it via General Warranty Deed, protected by a title insurance policy, which is issued by a title and settlement agent to your buyer through closing.
If you are the winning bidder at a tax deed sale, congratulations, you just became a property owner.
When you go to sell your property remember, you are selling real estate, not a tax deed. Contact Tax Title Services to help you avoid a quiet title action.
Don’t get stuck with a lemon, learn the correct terminology and apply it throughout your communication 🙂