[Cob] buying real estate for taxes

[Wesley Sandel]

I actually wrote this post once before and didn't post it because I thought
it was too long to be of interest.

There isn't anything intrinsically ethically wrong with buying property for
taxes, but it's difficult to view anyone who preys on the mentally infirm as
higher on the food chain than a leech. Property taxes are generally used to
fund (for the most part) the public schools (a funding  scheme that I'm not
crazy about, but that's a subject for a different venue) and I therefore
consider them a good tax (is this an oxymoran?). Anyone that owns real
estate knows that they have to pay taxes on it yearly.

Real estate occasionally shows up on the tax auction list for valid reasons:
e.g., the family has dwindled and when the last owner died there simply
wasn't anyone that cared enough to follow up on the inheritance, or the
owners don't think the property is valuable enough to justify paying the
back taxes.

There are people who make their living by buying tax auction properties.
Generally, when property is auctioned for taxes, the owners have a grace
period (varying from locale to locale) of something like five years to
redeem the property by paying the back taxes. The person who bought the
property at auction gets her or his money back, as it remains in escrow
until the sale is final. So if you have capital you can invest like this, go
for it.

Be aware that you can't really make any improvements on the property until
the sale is final (the grace period ends). You can probably build, but if
the owner redeems the property, you'll lose everything you've built.

How long a property can remain delinquent on its taxes before auction varies
from county to county and town to town, and is a major issue with people who
are interested in urban planning and urban renewal, because allowing owners
to hold property without paying their taxes can (and often does) lead to a
situation wherein developers speculate in properties in specific areas and
just sit on them at no cost (outside of the interest their money would
otherwise be earning). Houston is a very good example of this. The
developers have the city officials that are in charge of the process of
determining when properties are auctioned for taxes in their pockets (this
is a true story: the man in charge of this process is on the payroll of a
major developer to the tune of $30K A MONTH. When the paper ran an expose
about this, he wasn't in the least bit ashamed. Makes you wonder about the
meaning of public service). The developers buy up properties, both at
auction and from the owners (often through schemes like sending loan agents
around and offering the usually poor and uniformed owners mortgage loans
that the lenders know the borrowers won't be able to pay, so they get the
property by default). Then the developers just sit on the properties until
they have enough of them that they can move in on entire neighborhoods and
dis-posses the people that live there. Happens all the time.

Sleaziness isn't confined to the city. Often, real estate speculators will
have informal agreements with county clerks, who inform them of what
properties are coming up for auction. We built a house in the woods as a
retreat in the 1980s. The county clerk had our address in New Orleans and
knew where to send the tax bill. But every year we would discover that the
property had been sold at auction, and we'd have to redeem it. The clerk was
deliberately not sending the tax bills to absentee owners, and the
speculators were buying up the properties. If this worked only 10% of the
time, the speculators would end up owning property for a small fraction of
its cost. So if you buy property somewhere where you don't live, be
especially cautious.