Buying Real Estate at Tax Sale

How To Buy Real Estate At Tax Sale

Buying tax delinquent property at tax sale is a profitable land buying method. However, buyers sometimes pay too much for the property or buy real estate that has serious title problems. Often the purchased property is not as expected, it may be inaccessible, a steep hillside, desert or undesirable in some other way. Follow the steps below to avoid these problems.

Tax Sales Process

Property is sold by the county for delinquent taxes. It often takes five years of delinquencies before the property is sold. Some states sell tax certificates. In this case you are buying the tax debt from the county not the property. We will focus on states that conduct auctions.

After meeting the requirement (number of years of delinquent taxes) the auction is held. Like any auction, the property is sold to the highest bidder. It is usually held annually at the local courthouse.

Property owners can redeem the property anytime before the actual auction. This means that the preparation and research I will describe below may be wasted if the property is redeemed before the sale.

Buy Before Property Tax Sale

Before going through the steps I want to share a great strategy to buy tax delinquent land. Contact the owner before the sale and offer to buy for a small amount. Then pay the taxes and you will own the property before the sale. Many owners will jump at the chance as they know they are about to lose the property.

This may not always be to the advantage of the seller as they are entitled to any proceeds from the auction above what is owed in delinquent taxes.

Check For Clear Title

Always have the title of the property checked before making a bid. This takes preparation and you will need to contact a title company before the auction. My title company is often contacted the day before the sale to check the title. That is not enough time to do a title search.

Many people buy property at the auction, discovering later there are title problems. The land may have loans, liens or other title problems. Don’t buy without knowing the title condition.

Visit Tax Deed Sale Property

Visit the property before the tax sale. Know what you are buying. There may be a reason the property is going to tax sale other than the owner can’t afford the taxes. The owner may know that the property has no legal access, is a steep mountain, or a sand dune.

Determine Property Value

Know the approximate land value of any property you want. It is easy to pay more than the property is worth at an auction.

Check Real Estate Listings

I have seen property sell at a tax deed auction for 2 or 3 times what adjoining property is listed for by a realtor. The listed property is not only cheaper but you also receive clear title, and have a realtor to do much of the work and show you the property.

Why buy real estate with title problems if you can buy property through a realtor cheaper and without title problems?

Avoid Auction Fever

Most importantly avoid auction fever. Auctions are exciting and it becomes a competition to win. Many bidders do it for fun with no idea what they are buying. Focus on a couple of properties and don’t pay more than they are worth.

Tax auctions have become so popular that owners are now buying property and intentionally not paying the taxes. When the real estate is sold at auction they receive any money above the delinquent taxes. If the property sells for a good price they clear a nice profit.

A Tax Deed Sale can be a great opportunity to get property at a great price but only if you prepare by doing your research before the auction.

February 27, 2016

Buying Real Estate at Foreclosure Auctions

Buying Real Estate At Foreclosure Auctions

To be successful buying land at foreclosure auctions, or more correctly Trustees Sales, you need to understand the foreclosure process. The process is long and complicated causing many to avoid them. Because of this, it is a great opportunity.

Understanding Foreclosure Process

You must understand the foreclosure process to be successful at trustees sales or foreclosure auctions. Understanding the process will help you decide the property in foreclosure, when the auction will be held and what a reasonable price is.

Finding Foreclosure Property

To buy at Trustee’s Sales you must find properties before the Trustee’s Sale. Trustee’s Sales are advertised in the paper before the sale, using a Notice of Trustees Sale. If you see the Notice the first week published you will have several weeks to research the property.

If you want more time to research you can review the Notices of Default recorded in the county recorders office. These are filed at least 3 months before a possible sale. The downside of using the Notices of Default is many of these properties will be paid and not go to Trustees Sale.

Know Property Value

You should know the approximate property value. The amount owed on foreclosure property is often higher than the properties value. If the amount owed is more than the property value – STOP! Don’t spend anymore time on this property.

Know Amount Owed

Before attending you should know the amount owed on the land. The first bid is made in behalf of the lender and will usually be for the total amount owed. If the amount owed is more than the property value there is no need to attend the sale. You don’t want to pay a premium for foreclosure property.

In a market of declining property values many of the properties at foreclosure auctions will be worth less than the amount owed. Be careful and don’t pay more that the property is worth. You may have to search many foreclosure notices to find an auction worth attending.

To find the amount owed you can call the individual or company handling the Trustees Sale. Their contact information will be in the Notice of Trustees sale published in the paper. If they refuse to give you the amount you can get a copy of the Trust Deed from the courthouse. You can estimate the amount by looking at the age and amount on the Trust Deed.

Research The Property

After you have found promising foreclosure candidates you should have a title search performed on the property. Unlike a standard purchase there is no title insurance on trustees sales so it is possible to buy land with title problems, or unpaid liens and mortgages.

Attending The Auction

If you find a property, at a good price, with no title problems nor outstanding liens, attend the auction ready to comply with the instructions in the Notice of Trustee’s Sale. This often includes certified funds at the time of auction for part or all of the bid price. Usually you must have a set amount at the auction and the rest within 24 hours.

The auction is handled like any other auction. Bids are taken and the high bid will win the property, subject to meeting the conditions in the Notice of Trustees Sale.

Buying property at foreclosure auctions is more difficult than many other methods. Because of this most people avoid them. This makes it possible to find excellent deals. It just takes work and preparation.

February 25, 2016

Reading a Real Estate Contract

Reading A Real Estate Contract

A Real Estate Contract, Real Estate Purchase Contract or REPC is the contract to buy land or other types of real estate. These contracts are created by the state real estate department and used by real estate agents. Individuals use the same or similar contracts.

The contracts vary from state to state but are similar. The main sections are listed and explained below. The first section lists the names of the buyers, sellers and realtors. The Real Estate Contract is about as boring as it gets, but necessary to understand when buying land.

Property

The property section describes the property included in the sale. This includes the real estate, any appliances included with a house and any water rights, mineral rights etc. Any items not included in the sale are also listed.

Purchase Price

The price section includes the purchase price and any financing. The financing might include bank loans, private loans or owner financing.

This section may also state the contract is subject to loan approval. The buyer will not be required to complete the purchase if their loan is denied. There also may be a appraisal condition which allows the buyer to cancel the contract if the property appraisal is lower than the purchase price.

Settlement and Closing

The settlement section covers items that must be completed before the closing. This includes documents to be signed, money to be paid, and required disclosures.

Possession

This section gives the date when the buyer can take possession of the property. This is usually a certain period of time after the closing occurs.

Agency Disclosure

Its very important to review this section. The realtor(s) disclose who they represent which is either the buyer or the seller. Keep this in mind when dealing with a realtor.

Title Insurance

Every buyer should demand title insurance when they purchase real estate. This section details the title insurance policy requirements and who pays for it.

Seller Disclosures

Seller disclosures often include the following:

Property condition disclosure
Commitment for Title Insurance
Any leases not expiring before closing
Any environmental liens or issues
Any building or zoning code violations
Other issues seller is aware of that affect the property

Buyer’s Right To Cancel

Conditions allowing the buyer can cancel the contract may include:

Buyers approval of seller disclosures
Buyers inspection of the property
Buyers approval of a land survey
Buyers ability to get home owners insurance
Other test and evaluations as listed

Seller Warranties

The Seller guarantees the property will be in good condition with a clear title and be broom clean. This includes all appliances work, there are no roof leaks, foundation cracks, or other problems not disclosed to the buyer.

It also discloses if the seller will provide a home warranty and what coverage will be included in the warranty.

Walk-Through Inspection

The Buyer is entitled to inspect the property before the closing. The Seller agrees to correct any problems found during that inspection within the limits described in this section, and to allow buyer to enter the property for the inspection.

Changes During Transaction

Seller agrees none of the following will occur without buyers consent:

No changes to existing leases
No new leases shall be entered into
No substantial improvements or alterations made to property
No loans or other encumbrances placed on property

Complete Contract

Buyers and Sellers agree that this contract and the attachments and addendum’s is the complete contract. This precludes any claims of verbal agreements or other buyer said/seller said issues.

Dispute Resolution

This details how any disputes will be resolved. Often the parties agree to a mediation instead of court.

Default

Both buyer and seller may default (not complete) this contract. This explains the remedies in a default, which may include retaining the earnest money or filing a lawsuit to force contract completion.

Contract Deadlines

There may be separate completion deadlines for parts of the transaction or contract. These could include:

Buyer Loan Application deadline
Seller Disclosure deadline
Property Inspection deadline
Loan Denial deadline
Appraisal deadline
Settlement deadline

Not meeting any of these deadlines by the responsible party (buyer or seller) allows the other to cancel the contract.

Offer And Time For Acceptance

Either the buyer or seller could make the original offer to the other, although the buyer more commonly makes the offer. This states how long the other has to accept, reject, or make a counter offer.

Nothing is more boring than a Real Estate Contract. I know because I read them all the time. However, if you are buying or selling real estate you better read it and understand it. There is too much money at stake to sign this contract without fully understanding it. You may also want to have your attorney review the real estate contract before you sign.

February 24, 2016

Owner Financing: the best real estate loan

Owner Financing: The Best Real Estate Loan

Owner Financing, also known as seller financing, is a real estate transaction where the seller is also the lender. Owner financed land can be any real property, although it is more common with land than houses or commercial property.

How To Setup Owner Financing

Seller financing is set up when the offer to buy land is negotiated. This is negotiated between buyer and seller with the help of any realtors. All terms are negotiable, including interest rate, payment amount, length of loan, and amount financed.

The interest rate is usually higher than the current bank interest rate. This is appropriate as there are no loan fees, which can be over 2% of the loan amount. Also, it is more difficult for the seller to sell the loan than it is for a bank to sell a loan.

Payments can be made directly to the seller or a payment collection company can be used. If the payments are made directly, the buyer and seller will calculate interest paid, current balance, and payoff themselves. The interest paid will need to be calculated annually for tax purposes.

If you don’t want to do this a payment or escrow collection company can be used. They will make these calculations and send an annual interest statement for tax purposes. They charge a setup and monthly fee for this service.

Documents Used

A transaction on owner financed land is similar to a bank loan without the fees. The same documents are used to transfer the property and secure the loan. The Lender is just the seller instead of a bank. A warranty deed is used to transfer the property to the buyer. The warranty deeds has warranties that the buyer owns the property free and clear.

A Trust Deed and Trust Deed Note is used to secure the loan to the seller. The Trust Deed is recorded with the Warranty Deed and includes the loan amount. The Trust Deed Note is not recorded but includes the loan terms such as interest rate, payment date and amount.

The Trust Deed can be foreclosed in the event of default. This is often a 3-4 month process and does not require a court hearing. The process varies from state to state.

Advantages To Buyer

The advantages to the buyer in this type of transaction include lower or no loan fees and financing without credit checks, appraisals or debt ratio requirements. The transaction is usually closed much quicker because of no approvals.

Advantages To Seller

The main advantage to the seller is the opportunity to earn interest which can be large depending on the amount, interest rate and length of the loan. It is also easier to sell your land, as it is difficult to get bank loans on land and few buyers have cash to buy real estate without financing.

The seller is also protected in the event of default as they can foreclose the property similar to a bank foreclosure. It is important to get a down payment that is large enough to cover foreclosure costs, any damage to the property and serve as incentive for the buyer to keep making the payments.

In the event of foreclosure the seller keeps all payments received from buyer.

Summary

Owner financing can be an excellent option for both buyer and seller. It offers the buyer an opportunity to buy land they otherwise couldn’t afford, and allows sellers to sell land in a market where cash sales are rare. And to earn interest in addition to the money earned from the sale of the real estate.

The seller is also protected as they can foreclose in the event of default, while the buyer becomes the owner at time of sale.

February 20, 2016

Joint Tenancy in Real Estate

Joint Tenancy allows the real estate to transfer to the surviving owner(s) on the death of one owner. It is most commonly used between spouses but is used in other situations and between more than two people.
There are many other ways to own land: Tenants in Common, Family Trusts, Partnerships, LLC’s, Corporations. Individuals usually hold real estate as joint tenants or tenants in common.

What It Does

This type of joint ownership allows for the surviving owners to receive the real estate upon the death of the other owner(s). It is most commonly used between spouses.

Upon the death of one, the surviving spouse records an affidavit of survivorship and a death certificate in the county recorder’s office. The ownership of the property is then transferred to that person.

The great advantage is the transfer happens without probate, attorneys, courts or major cost. The affidavit of survivorship is a simple one page document, easily prepared.

How To Use It

Using this type of vesting is simple. The following words “as Joint Tenants” is added after the buyer’s name on the purchase deed. If it isn’t added, the buyers can record a new deed at anytime to add it.

The following phrases are sometimes used instead of Joint Tenants; “husband and wife, as joint tenants”, or “as joint tenants with full rights of survivorship”. There are many combinations but the main part is “as Joint Tenants”.

In some states simply adding “husband and wife” after the buyers names is enough. To be safe always use “as joint tenants”. You can add the extra wording if you prefer.

Any owner can cancel this vesting between themselves and the other owner or owners. They record a deed transferring their interest to themselves or someone else without using the joint tenants wording. When they do, the remaining owners (if more that one) are still joint tenants.

When To Use It

The most common use of this joint ownership is between husband and wife but can be used in other situations and between more than two people. No matter how many people are joint tenants upon the death of one, ownership reverts to the survivors. Joint tenants is used anytime you want the surviving owners to own the property instead of the estate of the deceased owner.

Cautions

Several cautions are in order. First, make sure you want the property to go to the surviving owner(s). A common vesting error is when a couple with separate children buy real property as joint tenants when they intended their own children to receive their share of the land.

Summary

Joint Tenancy allows ownership of real estate to pass to surviving owner(s) upon the death of one of the owners. It is simple to use by adding the correct wording to a deed when purchasing land. It can be added or removed at anytime by recording a new deed at the county recorder’s office.

It is not the correct vesting for every situation. Decide what you are trying to accomplish and then choose the correct vesting.

February 17, 2016

The Real Estate Closing Process

The Escrow Closing or Real Estate Closing Process is not as complicated as it seems, with a little help anyone can understand and feel comfortable with the process.

The escrow closing process follows certain steps in a certain order, once you understand these steps, the process becomes clear. Several of the steps are part of every closing; others are optional depending on the circumstances.

Real Estate Contract

The Real Estate Closing process begins when you make an offer by signing a purchase contract, and the offer is accepted by the seller. When this step is completed several people get involved in your closing.
The Title Company begins to research the title of the property. An appraiser and surveyor may also start working on your closing. These happen in the background, all preparing for the signing or closing.

Title Commitment Review

After signing the Purchase Contract, the title company will prepare a Title Commitment. The Title Commitment shows any liens, judgments and other problem with the real estate title or ownership.

It is also a commitment to insure the property in your name at closing, subject to any terms contained in the Title Commitment. Review it carefully and call the title company with any questions.

Disclosures Review

Before closing, the seller is required to make disclosures to the buyer. These disclosures vary from state to state but include any leases that may be on the property as well as other things the seller is aware of.

If there are building on the property the disclosures should also include any problems or required repairs on the buildings.

If the disclosures show significant problems you have a certain amount of time to cancel the deal. The exact amount of time you have to cancel is spelled out in the purchase contract.

Appraisal

An appraisal is performed by a licensed appraiser, who uses recent land sales, to estimate the market value of your land.

If you requested an appraisal on the property, you should receive it before signing. If you do order an appraisal, the purchase contract should be conditioned on the property appraising for at least the purchase price. The appraisal is optional.

Land Survey

A Survey is often part of the real estate closing. The Purpose of a real estate survey is to mark the property boundaries, and map them in relation to the surrounding properties.

If there isn’t an existing survey on the property, and the boundaries are not marked, you need a survey.
Surveys are often required when you build a house on the property. If you plan on building in the future, this is good time to get a survey as the seller may pay all or part of the cost.

Property Inspection

The inspection is your last chance to look at the land again before you buy. This is usually scheduled just before signing.

Depending on what you are buying this could be very important. If you are buying land only, it may be less important, but if you are buying land with buildings, equipment, etc., this is the time to make sure everything is in working condition.

Real Estate Escrow Signing

Finally, it’s time to show up at the designated place to sign the Real Estate closing documents. This is sometimes referred to as the Escrow closing, although the entire process is part of the escrow closing. The previous steps may happen without your knowledge, and explains why it takes so long.

You will need to bring the required money to close. The amount should be certified funds (cashier’s check, wire, etc.).

This is the time to review all the papers and have any questions answered. This is your last chance to have any concerns addressed by the seller or realtor. Once you sign the papers the land and any problems are yours.

Document Recording

After signing, and after the money has been cleared, the title company will record the deed, transferring the property into your name.

If you borrowed money to purchase, the mortgage documents will also be recorded. After the recording is completed, you become the official owner.

Possession

Date of possession will be sometime after Recording. It is usually an agreed number of days after the recording, as agreed in the purchase contract.