Yes, they are excellent investments if you know your state's laws regarding property tax sales and redemption rights. Most of the infomercials sell you fairly inexpensive how-to materials. Their real money comes from various levels of title-clearing services they offer to you after you buy property.
What makes a property tax sale unique is the super-priority given to taxing authorities. If there are competing liens on real estate - mortgages, IRS liens, judgment creditors, and liens for unpaid real estate taxes, the property tax lien always comes first. In other words, a sale under that lien wipes out all the other liens and claims to the property, no matter when they were filed.
That is the upside. The downside is that there are a lot of loopholes and technicalities. None of them are terribly complicated, but it is hard to find out what the rules are so you can follow them. They are different from state to state. I suggest that if you want to follow this strategy, you identify a title insurance company with which you would like to do business.
Ask to speak to the lawyer who does the underwriting for tricky issues. That person can give you the education you need, because that person will decide if he or she will issue title insurance to you after you buy.
One of the technicalities in my state is fairly common. If someone explains it, the rule is perfectly understandable. If, however, you read the tax sales statutes, you might never see this rule spelled out, and you would be ignorant of it. In my state, if I bought property at a tax sale, I would receive a tax certificate.
The former owner would have three years to redeem and buy the property back by reimbursing me the purchase price, plus expenses, plus interest at 12% per year. Failure to redeem in three years means I can demand and obtain a tax deed.
If the tax collector did something wrong in the process of sending out notices or selling the property, then the tax sale would be void. I might receive a piece of paper called a deed, but it would be worthless. In my state, the real owners would have another three years to file suit against me, reclaim the property, and reimburse my purchase price, expenses, and interest.
Time limits differ among states. If the prior owners do not contest the tax sale within the required time period, then they are forever barred and the property is mine.
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06282010
1. Investing In Commercial Real Estate
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