Tax Deed Investing and Quiet Title Suits in FL
Michael Hagen of Hagen Law Firm outlines: 1. how tax deed sales occur; 2. tax deed opportunities, benefits and risks; 3. tax deed due diligence and 4. post-sale procedures. These general observations are based on Hagen's 15 years of experience buying tax deeds, counseling buyers & quieting title.
1. Procedural Overview of Tax Deed SalesA tax deed sale is conducted by the County Clerk of Courts and is governed by Florida Statutes Section 197. A tax deed sale results after a property owner fails to pay his local property taxes. After a statutorily prescribed period of time passes, the holder of a tax certificate may file a tax deed application (*TDA*). Upon such application, the Clerk of Court is required by law to notify the delinquent property owner as well as certain specified lien holders. These parties are obtained from the title search by a title company hired by the Tax Collector (that report is obtained solely for the purpose of notifying the proper individuals, but is also secondarily utilized by potential tax deed buyers as it usually discloses most potential lien problems). The Clerk is also then required to publish a notice of sale for four consecutive weeks in the local newspaper.
After completing these steps, the Clerk conducts a tax deed auction. Bidding starts at the amount of the unpaid taxes and associated sale fees. If no one bids, then the tax deed applicant automatically receives a deed from the Clerk. If, however, the high bid exceeds the TDA amount, then the high bidder obtains a deed and the tax deed applicant just receives the amount paid at the time of his TDA. The tax deed high bidder immediately pays upon completion of that particular parcel's auction from the funds deposited in advance of the auction. Most auctions are now online rather than live and in person.
2. Tax Deed Opportunities, Benefits and RisksTax deed investors purchase real estate at the tax deed sale rather than through typical avenues (such as properties listed for sale by real estate brokers or "for sale by owners") because the tax deed sale offers an opportunity to purchase for prices significantly below market value. I have observed these discounts to frequently be in the 25%-50% range below market value. Additionally, tax deed investors have the chance to obtain multiple properties at a time, making for an efficient use of the investor's valuable time.
Most investors would agree that the potential rate of return and risk are directly correlated: the higher the risk, the higher the potential rate of return. Conversely, the lower the risk, the lower the rate of return. Tax deed sales are no exception, they do involve some level of risk that many investors deem acceptable and offer a corresponding higher profit potential.
Unlike typical real estate transactions, tax deed sales are "buyer beware" sales with no title insurance at the time of the sale. The issuance of a valid tax deed typically extinguishes any nongovernmental liens such as mortgages and judgments, but if the tax deed sale proceeds are not sufficient to pay off governmental liens (assessments, IRS tax liens, code enforcement liens, etc.) those governmental liens continue to attach to the property. The Clerk offers no warranties as to title or that the property can be used for the purpose the investor intends.
3. Tax Deed Due Diligence (pre-sale)It is very important to do your "due diligence" prior to the sale. If the property has a building, by all means do an exterior and interior inspection if possible. This can be problematic. Get a current title search so you know what liens, governmental and non-governmental, attach.
A tax deed buyer does not get a warranty deed. The title obtained is not initially a clear, insurable title. In order to clear the title the tax deed, the buyer typically hires an attorney to file a quiet title action (unless the buyer wants to wait for the four year statute of limitations period to run, which then automatically divests any claimants of the right to challenge the sale). The singular purpose of this quiet title action is to extinguish the interest of the prior owner who lost it to the tax deed sale, along with any non-governmental lien holders. This procedure is typically a formality, as the only way that the former owner can typically successfully object to the tax deed purchase is (A) if he did pay the taxes before the tax deed sale (Comment: almost never happens), or (B) if the Clerk failed to follow the required sale formalities, such as notification and advertising. If the former owner succeeds in proving (A) or (B), then a Court can order the former owner to be restored as owner, in which case the tax deed purchaser would receive a refund of his tax deed price but would bear the loss of his attorney's fees and costs and lost potential profits.
Unless one of those two very unusual circumstances are demonstrated, however, the tax deed buyer will typically successfully quiet the title and the Court will then rule that this tax deed buyer is the one true owner and that any other interests are forever extinguished. It is the norm for the tax deed buyer to prevail in the quiet title act
4. Post-sale procedures*Post your bid in the correct name as buyer. It can be problematic to correct the name post-sale;
*See that you receive the recorded deed;
*Take occupancy if the property is vacant, but if the property has an occupant see your attorney for advice as to a writ of possession or eviction as self-help eviction is illegal in Florida
*See an attorney to commence the quiet title procedure unless you can wait out the 4 year statute of limitations.