Definition
A tax sale is a legally sanctioned sale of a property resulting from the owner’s failure to pay property taxes. When taxes on a property remain unpaid after a certain period, the government authority—usually a county or municipal tax office—has the right to auction the property in order to recoup the unpaid tax amounts. The winning bidder in a tax sale receives a tax deed, granting them ownership of the property. However, in most states, the original owner (defaulting party) is granted a redemption period during which they can reclaim their property by paying the outstanding taxes, interest, court costs, and sometimes the purchase price.
Examples
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Example 1:
- Situation: Jane failed to pay her property taxes for three consecutive years.
- Action: The local municipal tax office initiated a tax sale on her property to recover the owed tax amounts.
- Result: John bid on and won the property at the tax auction, receiving a tax deed. Jane was given a redemption period of one year to reclaim her property by paying back the taxes, interest, and any other costs.
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Example 2:
- Situation: Bob’s commercial property accrued unpaid property taxes totaling $20,000 over four years.
- Action: The county held a tax sale auction.
- Result: An investor purchased Bob’s property at the auction. Bob had a two-year redemption period to settle the debt and reclaim his property.
Frequently Asked Questions
What is a tax deed?
A tax deed is a legal document that grants ownership of a property to a purchaser after a tax sale. It conveys all the rights, titles, and interests in the property that were held by the previous owner.
What is a redemption period?
A redemption period is a designated timeframe after a tax sale during which the original property owner can reclaim their property by paying the unpaid taxes, interest, court costs, and sometimes additional fees like the purchase price.
Can anyone bid on properties in a tax sale?
Yes, typically anyone who can meet the bidding requirements set by the conducting authority (usually a county or municipal tax office) can participate in a tax sale auction.
What happens if the property is not redeemed during the redemption period?
If the defaulting owner does not redeem the property during the redemption period, the purchaser retains full ownership of the property without further obligation to the former owner.
Are there risks involved in purchasing properties at a tax sale?
Yes, purchasing a property at a tax sale can entail significant risks, including issues related to liens, property condition, marketability, and possible complications during the redemption period.
Related Terms
- Tax Deed: A legal document conveying ownership of the property after a tax sale.
- Redemption Period: The time frame during which the original owner can reclaim their property after a tax sale.
- Defaulting Taxes: Failure to pay owed taxes within the statutory deadline.
- Ad Valorem Taxes: Property taxes based on assessed value.
- Property Auction: A public sale process where properties are sold to the highest bidder.
Online Resources
- IRS Property Tax Information
- National Tax Lien Association
- Nolo’s Guide to Tax Sales
- Local County Treasurer’s Office
References
- Smith, John L., “Understanding Administrative Tax Sales,” Journal of Tax Research, vol. 12, no. 4, 2020.
- “Property Taxation in America,” U.S. Department of the Treasury, Publication 5861A.
Suggested Books for Further Studies
- “The Complete Guide to Tax Liens and Tax Deed Investing: Create You a New Financial Pipeline,” by Don Sausa
- “Profit by Investing in Real Estate Tax Liens: Earn Safe, Secured, and Fixed Returns Every Time,” by Larry B. Loftis
- “Real Estate Tax Sale: How to Profit from Tax Liens,” by Frank Gallinelli
