It’s that time of year . . . you know . . . to be scared of scary things. We see a lot of scary things in real estate . . . a lot of scary things. But it’s our job to shield you from those menacing figures. If my 10 year old daughter were writing this, she would say that in Harry Potter terms, we are the Patronus that casts away real estate’s Dementors. The spell we’re casting here is to warn you about the pitfalls associated with purchasing a tax deed. Although tax deed sales can be lucrative investments, they bear with them a certain element of risk.
Tax deed sales in a nutshell: Owner of real property fails to pay property taxes. Third party investors buy “tax certificates,” which they do so that they may collect a bit of interest on the payment. Those certificates, if not redeemed, can after time result in the investor’s application for tax deed. That application, under certain circumstances, results in a tax deed sale and the investor earning the “deed” to the property. Give us a call if you want more details. Again, nutshell version here.
The point of this post is to give you very useful insight into what tax deeds look like from our wizardly title insurance perspective. After all, if you purchase a tax deed, you’re likely interested in selling the interest in the property at some point. At that point, you’re going to have to jump through some hoops in order to do so in such a way that is acceptable or marketable, as we say, to a savvy buyer. Here are those steps and what they could mean to you or your investor clients.
Title insurance underwriting guidelines in Florida are pretty uniform. Winged Foot Title and our underwriter will likely give you the same requirements that you’d get down the road. For those playing at home, you’ll find a transaction’s requirements in Section B-I of our title commitment. When we look at someone trying to sell a property they’ve procured at tax deed sale, this is what has to happen for us to issue a clear policy of title insurance to the buyer:
A) A Quiet Title Action pursuant to FS 65.081, joining the taxpayer that lost title, all lien holders and any other parties having an interest in the property, which results in a non-appealable Final Order Quieting Title to the property and vesting the title to the property in [Tax Deed Purchaser]; OR,
B) Obtain and record a Deed from [Previous Owner Who Didn’t Pay Real Property Taxes] to [Tax Deed Purchaser] conveying the land; OR,
C) Upon review and thorough examination of the tax deed proceeding, in which all statutory and procedural requirements have been met, the following Affidavits can be obtained and filed prior to the filing of the proposed insured documents:
- Affidavit stating that the parties that lost the property, or anyone claiming by, through or under them, has not been in actual possession of said property within one year, or more, following the issuance of the tax deed.
- Affidavit stating that the grantee on the Tax Deed, and/or anyone claiming by, through or under them, has been in continuous adverse possession of the property for a minimum of four consecutive years, following the issuance of the Tax Deed.
That’s a lot. We know. It’s easy to think that the tax deed sale eliminates all previous interests in the property. And don’t think we don’t understand the arguments for that position. We do. Unfortunately, we can’t insure based on those arguments. So, here is what those requirements mean in the real world.
A, B & C are disjunctive requirements. That is, any one of them will do the trick to make the title insurable. We don’t need them all. But each of them have their costs, of course. With respect to A, a quiet title action requires litigation. Litigation, ordinarily, requires representation by an attorney. Off the cuff, I would estimate that a quiet title action would cost a property owner $4,000 at minimum. Definitely something to keep in mind as you run your numbers on the investment. Have questions about a quiet title action? Give us a call and we’ll point you in the right direction.
As to B, in our experience it has been very difficult to both find and connect with the previous owners and, if we actually connect with them, to convince them to sign off on a deed to the new owner by tax deed sale. We do as much as we can; but, sometimes it becomes an impossibility to make this happen for many understandable reasons.
C costs time. And, time is money. There are, of course, things we can do to offset the cost of time; but, we cannot get around this four year period if we defer to the third requirement. Again, something to keep in mind as you plan your investment future.
We have had a number of these files recently and each has had its own complex issues related to the title requirements after a a tax deed sale. Hopefully this will help you set your expectations more appropriately when considering a tax deed sale.