When property owners don’t pay their property taxes, the parish tax collector (the Sheriff in most places) advertises the property in the parish’s official newspaper and sells it at a tax sale. But buying property at a tax sale isn’t quite like buying it in a normal sale.
What you’ll pay now.
At least at first, the price is fixed. It’s the amount of taxes due on the property plus interest and costs for the advertisement and sale of the property. Unsurprisingly, this is often quite a lot less money than the property is worth. In municipalities with over 450,000 residents, if the property doesn’t sell for the asking price, the tax collector can offer the property for sale again with no minimum bid. But before you get too excited about your fantastic deal, you should know that there are a few little wrinkles.
You don’t fully own the property right away. If you buy at the tax sale, you purchase a “tax deed” from the tax collector and you have something called “tax sale title.” Some time after the tax sale, the tax collector will file a tax sale certificate in the parish’s public records. That certificate makes your tax sale victory official and formally notifies everyone that you bought the property’s tax title. But more importantly, the recordation starts the clock running on the last owner’s redemptive period.
After a tax sale, the owner of the property can redeem the property—i.e., get full ownership back—for a period of three years from the date the certificate is recorded. In New Orleans, the redemptive period is shortened to eighteen months if you purchase blighted or abandoned residential or commercial property. To redeem the property, an owner has to pay the price you paid (including any taxes you have paid on the property since the tax sale) plus a 5% penalty, plus 1% interest per month and whatever costs the tax collector imposes for the transaction. You, as the tax sale purchaser, get everything but the new costs.
What’s that mean in practice? First, the upside: if the person redeems the property, you’ll get all the money you spent on it in taxes and tax sale fees back plus some. Keep in mind that 1% interest per month gives you a 12.68% APR. It’s hard to sneeze at that kind of interest. The downside is that for at least three years, your title is uncertain. You can’t do very much with the property if you don’t know whether you’ll still own it next week. The other downside is that you may be required to take care of the property in the meantime. The city or parish might insist you cut the grass regularly or clear debris or tear down a dilapidated structure. And that could cost you money (or fines, if you refuse).
But before you can even go cut the grass, you have to figure out whether you have a legal right to enter the property. Normally in Louisiana, when you buy something, ownership comes with the right to possess the thing you bought. But in this case, you didn’t buy full ownership; you only bought a tax title.
As a rule, a tax purchaser is entitled to immediate possession of the property he purchased. But he can exercise possession of the property without any formalities only if he can do so without any resistance. If you buy a piece of property at a tax sale that doesn’t have anyone on it—a vacant lot, for example—you’re golden. You can walk right in and cut the grass, park your car on it, pitch a tent, etc.
The situation becomes a little bit trickier when other people get involved. For example, say you just bought an apartment complex at a tax sale. There are tenants residing in the apartments. They don’t want to pay you rent, so you want to evict them. At that point, a court needs to get involved, and you’ll need to follow all the proper procedures for establishing your right to possess the property. That topic is beyond the scope of this post; you should consult an attorney.
But the law does provide for automatic recognition of your right to possess the property if a parish or other government orders you to make changes to the property to comply with property standards, e.g., by cutting tall grass or removing debris. In that case, the you are entitled to an order from a court commanding the sheriff to seize the property and hand it over to you without a hearing. You probably should still get the help of an attorney. This statute outlines the procedure.
If you make it through the whole redemptive period without having the property redeemed, congratulations are in order. But there are a few things left to do before you celebrate. The process is charmingly called “quieting a tax title,” and you’re probably going to need an attorney’s help to put it to bed. Louisiana’s statutes lay out the process; basically, you file a lawsuit against the former owners of the property and ask the court to terminate their ownership and recognize yours. Once the old owners are served with your lawsuit, they have six months to try to annul the tax sale. If they don’t, the property will officially be yours forever after.
Tax sales and you.
I like to go to tax sales. Sometimes I even buy stuff. But that’s me. Before you go haring off the to the next sale, talk to your legal and financial advisors. Talk to your spouse. Ask yourself if you can afford to spend the money required to maintain the property and pay the taxes while you wait for the redemptive period to pass. It can be a huge investment, both in terms of time and money. And don’t forget you’re almost certainly going to have to hire an attorney to at some point, so factor that cost in. But it can also be a spectacular investment.