In­vest­ing through tax sales doesn’t re­sult in im­me­di­ate home own­er­ship

Sun Sentinel Broward Edition - Homespot - Broward East - - FRONT PAGE -

back taxes on a home, will I own it?

Not quite. When a prop­erty owner doesn’t pay the tax bill for a piece of real es­tate, the county as­ses­sor’s of­fice has the right to sell the prop­erty to some­one else who is will­ing to pay the taxes.

But in most cases, the in­vestor (the per­son who pays the tax bill) doesn’t get own­er­ship of the prop­erty im­me­di­ately. In­stead, the orig­i­nal owner has a fixed pe­riod of time to re­pay the in­vestor (or “re­deem the taxes”) the amount of the tax bill plus some rate of in­ter­est. In many coun­ties, the owner has up to two years to bring the tax bill cur­rent and the in­vestor might re­ceive as much as 18 per­cent in­ter­est over that time.

If that sounds high, in an era where in­ter­est rates at his­toric lows, it is. The in­vestor is well com­pen­sated for the op­por­tu­nity cost of his or her cap­i­tal. For this rea­son, there are quite a num­ber of peo­ple who have gone into buy­ing up prop­er­ties at tax sales with the hope of mak­ing a high rate of in­ter­est on the money. They aren’t re­ally look­ing to own the prop­erty, but rather to have the home­owner re­deem the taxes and earn a good amount of money along the way.

If the owner re­deems the taxes, then he or she main­tains own­er­ship of the prop­erty. But if the two-year pe­riod elapses and the owner fails to re­pay the amount owed plus in­ter­est, ti­tle in the prop­erty would trans­fer to the in­vestor. And trust us, many in­vestors wind up with the ti­tle to the prop­erty.

Ilyce just had this con­ver­sa­tion with a friend whose brother lost sev­eral prop­er­ties he owned be­cause he failed to pay the back taxes. The prop­er­ties were worth sev­eral hun­dred thou­sand dol­lars apiece, and the inves- tor picked them up for less than $10,000 per prop­erty. Now, that’s a great rate of re­turn, even if the prop­er­ties needed a tremen­dous amount of re­pair.

On the flip side, there are sit­u­a­tions where a tax sale may have been in er­ror and the per­son that put up the money to buy the un­paid taxes at the auc­tion may end up get­ting his or her money back but no in­ter­est on that money.

To find out more, please con­tact the as­ses­sor’s of­fice in your area.

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