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What is a Tax Sale?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 10 November 2016
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Scarlett O’ Hara, despite working hard to pay taxes on her beloved home Tara, ends up in significant trouble in Gone with the Wind when the taxes are raised to an amount far more than she can afford. This was an occasionally used practice among carpetbaggers and scalawags, after the Civil War; they raised taxes above the level affordable by homeowners in order to acquire their property by paying those taxes. Had Scarlett not stolen her sister’s fiancé and married him, she would not have had the money to pay this new tax, and the property would have been sold by tax sale.

Today, raising taxes arbitrarily is not common. Yet failure to pay taxes can result in the government doing all it can to recover amounts owed. This results in two kinds of tax sale, the tax lien sale and the tax deed sale, and a number of different ways in which people can acquire either liens or deeds to property just by paying back taxes (or slightly more) on a property.

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A tax sale called a tax lien sale occurs when the government sells the right to assess taxes and take further measures like reclaiming the property, if a person cannot meet their back taxes. These can occur on most physical property, such as cars, boats or homes. Purchasing a lien may mean you are given steps like garnishing people’s future wages, or issuing a levy on property and selling it at a later point to repay your purchase. If taxes are still unmet, you acquire the right to seize the property.

Equally common is the tax sale referred to as the tax deed sale. This is when the government to which taxes are owed sells property in order to get back their tax payments. For people who own their homes, or who have a fair share of equity in them, avoiding tax sales that take away their property is a good idea. Usually, enough notice is given that people can sell property on their own, pay the back taxes or transfer this obligation to a new owner, and still recoup their own equity.

On the other hand, when a government institutes a tax deed sale, they are under no obligation in many cases to sell the property for more than the taxes. Numerous people have made significant profits by paying back taxes on property and thus acquiring such property at well below market cost. Since many have turned this into a viable business, there can be a number of people who show up at a property auction or who bid online to grab property at low rates.

The more people who do bid generally means prices get higher and ultimately may not be such great deals. Sometimes, though, not that much interest exists in property, and people can acquire it for extremely low rates. It should be stated that a few people feel moral qualms about making money on the misery of others, which is clearly the case with many tax sale situations, especially when taxes owed were very low, and could have been met with a little charity.

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cupcake15
Post 2

@Subway11 -I agree with you and I wanted to add that I prefer bank owned auctions rather than these tax sale auctions. The biggest reason is that with a bank owned auction the properties all have a clear title because the bank was forced to clear it so you know that the property does not have any hidden liens.

However, with a tax sale auction or any judicial auction for that matter the title is not clear which means that the investor is on the hook for whatever liens are on the property.

This can make purchasing one of these property extremely risky. You would essentially have to run a title search to see what other liens the property has and that could run you about $750 per property.

subway11
Post 1

I just wanted to say that I understand that some people may feel that investing in tax lien properties might be taking advantage of someone’s misery, but I don’t see it entirely that way.

There are many reasons why a person would fail to pay their taxes and it is not always because they could not afford it. Sometimes people avoid paying taxes until they are caught and by then the sums are usually a lot higher than what they originally owed.

I also think that the responsibility of owning a home is paying property taxes and if you are unable to you have to either sell your home or get a roommate to help you. While

I do understand that there are a number of people that lose their home to a government tax foreclosure sale for legitimate reasons which is sad, we should not fault the investor that has a business and could either sell that home to someone who could afford it or even offer the home as a rental so that someone else could live in it.

Also, these tax sale foreclosures are risky so the investor had to take a chance to find the home and sometimes these homes have additional hidden liens.

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