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

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.