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Tax Sale Properties

WE HELP WITH TAX SALE PROPERTY

What is a Tax Sale Property?

Each year the Commissioner of State Lands goes county to county to auction off real estate that been tax delinquent for several years.  A catalog of the properties, dates, and locations of the auctions is available on the Commissioner of State Lands website.

What am I buying?

You are buying whatever interest the tax payer and/or the State of Arkansas has in the property.  The vast majority of the time you will end up owning the property, unless a mistake was made by the county assessor’s office or the Commissioner of State Lands Office.  In the event that you do not get the property, your purchase money will usually be refunded by the Commissioner of State Lands at the end of the legal proceedings. It is important to note that the Commissioner of State Lands does not warrant any part of the transaction or the property.

What am I buying?
You are buying whatever interest the tax payer and/or the State of Arkansas has in the property.  The vast majority of the time you will end up owning the property, unless a mistake was made by the county assessor’s office or the Commissioner of State Lands Office.  In the event that you do not get the property, your purchase money will usually be refunded by the Commissioner of State Lands at the end of the legal proceedings. It is important to note that the Commissioner of State Lands does not warrant any part of the transaction or the property.

What are the risks?

There could be liens on the property, such as mortgages, liens, IRS liens, etc.  However, the vast majority of time, these liens are extinguished by a valid Tax Sale or can be removed in a quiet title suit.

There may be people occupying the property.  These people can be removed through the quiet title process, but there could be additional costs and legal fees to do so.

You are buying a property without seeing or inspecting the inside of the buildings.  If you purchase a property with a building, you can only see what you can see from the outside, you are not permitted to enter the structure before the auction.  So there is a risk that the building will need major renovations. Most of the properties have been unoccupied for a few years, so there is a large chance that any building you purchase will need renovations and repairs to be habitable.  

Properties that are in a subdivision are sometimes covered by a Property Owners Association agreement and this agreement survives the tax sale.  Meaning you will be liable for monthly or annual dues to the Association once you own the property. For example, the empty lots that will be listed in Bella Vista, Benton County, Arkansas will have a POA that will expect you pay the dues once you buy the property.  

What should I do before the auction?

Properties can and will be redeemed before the auction, the day of the auction, and sometimes after the auction; so I recommend waiting until the day before the auction to really begin looking at the properties.  Research the properties online, and drive out to see the properties that you are interested in. If you want to have title work done before purchasing, that will need to be done a week or two before the auction. You need to know all you can about the property, but since about half will be redeemed before or after the sale, you don’t want to spend to much time or money researching the property only to have it redeemed.  Also, make a note on whether it appears someone is living on the property or if it appears to be abandoned; either way could incur additional expenses to either remove the person living on the property or making repairs based on deterioration to the property from no one living there for several years.

Take a practice run.  If you have never purchased a property at a Tax Sale auction before, I recommend taking a practice run.  Find a county that is close to you, look at the properties available, select 5-10 that you are interested in, go look at the properties and decide what you would be willing to spend on them.  Then go to the auction and see what they sell for. And, if you have time, follow up a year later to see if the properties were resold and for how much. That information is available online for free.  The only thing you won’t know is how much was spent on repairs (you might be able to tell if some repairs were done by driving by the property). This way you can see if you would have made any money on the purchase.  

What legal work needs to be done after the purchase?

    • The best way to make the title marketable is to do a Quiet Title and Confirmation of Sale suit.  This lawsuit allows us to remove any previous owners interest, and remove the vast majority of liens from the property.  At the end of the lawsuit, you will have clear and marketable title to the property and can resell it.After you purchase a property at a Tax Sale auction, and are issued a Tax Deed, the next step is clearing title to the property so you have marketable title to the property.  Marketable title means that a title company is willing to insure the sale and a bank is willing to issue a mortgage against the property. This is key to being able to resell the property, most people will not and should not buy a property without title insurance, and a bank will not accept the property as collateral for a mortgage without title insurance.

What are the terms of the sale?

This is a cash auction!  You will need $100 in cash for each parcel you purchase and you will need to pay the remainder by cash or check before you leave the auction.  So, it is not possible to take out a mortgage on the property to buy the property. You must be ready to pay for the entire purchase price the day of the auction.  Additionally, the tax payer has 10 days after the auction to redeem the property, meaning they have 10 days to pay the back taxes and fees to reclaim the property you purchased.  If that happens, then you will receive your purchase money back from the Commissioner of State Lands.

Check the Commissioner of State Lands Website before the auction to confirm the terms of sale have not changed and for more details on the terms of sale.

What is the procedure for a Quiet Title and Confirmation of Sale Suit?

Step One is ordering title work to find all interested parties, this costs about $200.

Step Two is filing the suit, naming all interested parties and lien holders as defendants. The cost of filing the suit is $165 plus $2.50 for each interested party.

Step Three is serving notice upon all interested parties and lien holders through a procedure laid out in the statute; this can cost anywhere from $50-$300 depending upon the number of interested parties.

Step Four is publishing Notice of the suit in the newspaper and posting Notice on the property itself.  Publication in the newspaper costs anywhere from $400-$900 depending upon the length of the legal description (the newspaper charges per word).

Step Five is waiting about 2 months for the services we sent out to be returned and for a 30 waiting period that the parties have to respond to the lawsuit.

Step Six is moving for summary judgment; if no party has responded, which is common, then the Court grants us clear and marketable title to the property.  If a party has responded, then they will either sign off on the Judgment or we will have a hearing to see if their claim has any merit.

Step Seven, you now have clear and marketable title and can list the property for sale or begin making repairs and renovations.

The entire process typically takes about 4 months, sometimes longer if a party responds and requests a hearing.

What is the cost of the Quiet Title Suit?

Generally, the total cost is about $3000.  It can vary based on the number of parties, the length of the legal description, if any party responds to the lawsuit, and if a hearing is necessary.  As you can see in the previous section, the ‘out of pocket costs’ run between $1000-$1500. And about $1500 in legal fees, depending upon if a party responds and if a hearing is necessary.  

It is critically important that you factor in these costs when making your bid!

This sounds complicated and risky, why would I want to do it?

Because many of these properties sell for 25%-50% of their actual value (even pre-renovation in some counties).  The fact that it is risky, it is a cash auction, it does require a lawsuit after purchase, etc., drives the prices down.  If you educate yourself on the process, the risks, and the properties, this can be a very lucrative investment. I have seen many clients double their money on these purchases.  

Where can I find more information?

The Commissioner of State Lands Website contains a ton of useful information.  It also contains a list of the properties to be auctioned and the dates and locations of the auctions.

Their website is http://www.cosl.org/

Whether it’s business or personal legal needs, we can handle it.