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Tax Deed Overview For Prospective Purchases

By Attorney Michael S. Hagen (Copyright 2022).

Procedural Overview of Tax Deed Sales

A tax deed sale is conducted by the County Clerk of Courts and is governed by Florida Statute 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 (2 years minimum), 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.

This list of parties is 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 only receives the amount paid at the time of his TDA. The tax deed high bidder immediately pays upon auction completion from the funds he deposited prior to the auction. Most auctions are now online rather than live and in person.

Tax Deed Opportunities, Benefits and Risks.

Tax 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. You obtain 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.) then 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. Accordingly, it is very important to do your “due diligence” prior to the sale. If the property has a building, do an exterior and interior inspection if possible. This can be problematic.

A tax deed buyer does not get a warranty deed. The title obtained is not initially a clear, insurable title: it contains no guarantees. 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 fouryear 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 nongovernmental 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 action, after all, if the former owner did not care enough to pay the taxes they typically will not care enough to hire an attorney to contest the quiet title action. Such uncontested quiet title actions typically cost approximately $2,500 in attorney’s fees and approximately $1,000 in court costs and filing fees and usually take about 6-12 months to complete (Note: more than one parcel purchased by the same tax deed buyer may be combined in the same quiet title action to reduce the per parcel cost). Upon quiet title completion the tax deed buyer can then sell via warranty deed and have an attorney or title insurance company issue a title insurance policy to the buyer on the resale.

Tax Deed Due Diligence.
Pre-sale procedures should include the following:

*Properly registering for the online auction and posting sufficient deposit funds:
*Determining the name by which you wish to take title (important);

*Reviewing the Clerk’s tax deed files and Tax Collector title report to avoid bidding on parcels
with potential lien problems;
*Ascertaining the exact location of each parcel;
*Reviewing aerial photographs of each parcel (to identify “pros” or potential problems);

*Site inspection;
*Estimating market value via completed sales, pending sales and current listings (,
*Determining target auction purchase prices via recent tax deed sale activity and otherwise;
*Note: for higher dollar purchases it is advisable to obtain a new title report as there may be a
time lag of several months between the date of the Tax Collector title search and the sale date
and new documents may be filed of record after the search date.;

*Inputting the maximum bid price on the bidding website (like eBay bidding).
Post-sale procedures:
*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 self-help eviction is illegal in Florida
*See an attorney to commence the quiet title procedure or wait out the 4 year “statute of
limitations” period;

Michael Hagen has practiced law in SW Florida since 1985. His focus is real estate law, both transactional (contracts, closings, title insurance) and litigation. Hagen was the former attorney (1994-2003) to the Lee County Property Appraiser, and he continues to be a leader in the property tax law realm. Hagen manages the Hagen Law Firm, consisting of two attorneys and four experienced paralegals/staff members. Hagen also owns TaxCuts1, SW FL’s leading property tax consultant.

Hagen Law Firm is pleased to provide customized advice to parties in tax deed sales in SW FL.

Click here to Contact Attorney Hagen, today!