When it comes to delinquent tax sales, how the tax assessor’s office treats the property owner is crucial. Key questions to consider include: Did the owner receive a tax bill? When and how was it delivered? Were they notified of the tax sale in a timely and proper manner?
Nearly every major dispute in tax sales revolves around whether all proper entities received notice of the tax sale and if that notice was delivered correctly. The U.S. Supreme Court has required broader notice over time, but state and local laws have not always kept pace. This discrepancy often leads to issues, as federal laws take precedence, creating potential problems for local tax assessors operating under outdated regulations.
Who Should Receive Notice In a Tax Foreclosure
Everyone with a recorded property interest in the tax parcel must receive notice of the tax sale. This includes property owners, mortgage companies with a deed of trust, entities with mechanic’s or judgment liens, and various governmental tax liens. While this list isn’t exhaustive, it highlights the breadth of parties that must be notified. Notably, unrecorded interests, like a carry-back mortgage from a former owner, might not receive notice as their existence isn’t discoverable by the tax assessor.
Delivery of Notice by the Tax Assessor
Historically, tax assessors would simply send a letter to the property and publish a notice in the newspaper. Today, the process is more stringent. Owners and other interested parties should receive a certified letter explaining the delinquency and potential sale. If the certified letter isn’t successfully delivered, a regular mailed notice to the “occupant” and a published notice identifying each property for sale should follow. Additionally, assessors must use any other practicable means to notify interested parties, often involving posting a notice on the property or personal service by the sheriff or a process server.
Consequences of Improper Notice on Title
If proper notice isn’t given, the tax sale could be overturned. This poses significant risks, especially if the successful bidder has already developed the property. Unfortunately, there is no recourse against the assessor, which underscores the importance of due diligence—hence the adage, “Buyer Beware.”
Title Insurance in Tax Sales
Title insurance companies have traditionally been reluctant to insure properties with titles derived from tax sale proceedings. This is because title insurance policies protect owners and lenders from defects in the title. For example, if a bidder buys a vacant lot for $2,000 at a tax sale and builds a house worth $150,000 on it, or if they purchase a decrepit house for $4,000, spend $40,000 on renovations, and end up with an $80,000 property, title insurance is crucial.
A title insurance policy is essential if you plan to get a loan on the property, as banks require a lender’s policy. It also protects against former owners reclaiming the property through court if they were denied due process during the tax sale. Without title insurance, buyers risk losing their entire investment, which can also apply to properties purchased from land banks that typically come through the tax sale process.
Engaging Progressive Title Insurance Companies
Some progressive title insurance companies today are willing to insure tax sale properties. Savvy buyers should engage these companies before bidding. For example, you can contact them and say, “I want to bid on 123 Main at the tax sale.” The company will then provide a quick title report, which can reveal crucial details like the presence of state or federal tax liens. Federal tax liens survive tax sales, making such properties generally undesirable. State tax liens may be removed in the tax sale, depending on the state. The title report also identifies interested parties who should have received notice of the tax sale.
After a successful bid, the title insurer uses the title report to ensure proper notice was given. They can often resolve issues where notice was deficient, such as negotiating with a bank for a mortgage release. Once the title company is confident that the foreclosure process was properly conducted, they will issue the title insurance policy.
These title policies are more expensive than typical ones but are well worth it due to the high incidence of title problems in tax sale properties. They require more work, but the protection they offer is invaluable. To recap, contact the title company before bidding to get a preliminary report. If a federal tax lien is present, it may be wise to pass on that property. Then, contact the company again after taking title to obtain the title insurance policy. This applies to both tax property sales and tax lien sales, with some procedural differences.
Be Sure to Work With a Reputable Title Company
Title insurance is absolutely necessary in the tax sale process and worth every penny. Understanding due process and securing appropriate title insurance can save buyers from significant financial loss and legal complications. By following these steps, bidders can protect their investments and ensure a smoother, more secure transaction.
Attorney Ted Anderson’s insights highlight the critical importance of due process in tax foreclosure sales and the potential pitfalls when it is not properly followed. For buyers at tax deed sales, understanding these issues is crucial to avoid future complications with property titles, which is why Ted is join us and bringing a few friends to educate on the issues at the August 13th MAREI Meeting.
