When property owners fail to pay their mortgage, the bank has the right to foreclose and take the property. The same is true with property taxes. If property owners don’t pay their property taxes, the city or county can put the property up for sale.
Tax sales are straight forward in Georgia, but the nuances get people into trouble. Here is how it works.
State law mandates that the municipality provide very specific notices to the property owner. After attempts to contact the owner fail, the municipality advertises in the newspaper for several weeks. Next, the property gets auctioned by the municipality that is owed the taxes. The opening bid is usually the amount of property taxes past due. Through a traditional style auction the property sells to the highest bidder.
After a sale, the successful bidder must pay for the property via cash or certified funds the day of the auction. However, the bidder does not own the property yet. They receive a “Sheriff’s Deed” giving them a claim to the title of the property. The bidder can’t step foot legally on the property, can’t insure it, repair it, or talk to any occupants that may occupy the building.
For the period of 12 months the successful bidder can’t do anything related to the property. After 12 months the bidder may start the foreclosure process on the property. After several weeks, which include legal notices and advertising the property in the newspaper, they can foreclose on the tax lien and get actual title/ownership to the property.
During those 12 months, the party who lost the property may redeem it. They must pay the bidder what the high bid was plus 20 percent. This means for a property worth $100,000 on which the original owner owed $5,000 in taxes, if the high bidder buys it for $20,000, the original owner would have to pay $24,000 to get the property back. The original owner could not redeem the property for the $5,000. they originally owed.
Unfortunately, many successful bidders do not understand what the ramifications of purchasing a property at a tax sale are. There are still problems. The main issue is that the bidder and now clear owner of the property can’t sell the property to another party and warranty the title. They can sell the property. But the buyer will have what is known as a “Cloud on Title” for at least 10 years and maybe longer depending on other potential title problems that existed prior to the tax sale.
Tax sale title problems are solved one of two ways. Option 1: Hire a lawyer to perform a “Quiet Title Action”. This is the bidder basically suing the title to the property for any potential claims that may exist. It takes anywhere from 4-12 months and costs anywhere from $4,000 to $10,000 depending on the complexity of the issue. This is the most thorough and cleanest way to solve any title problem. Option 2: Bidders can ask the person who lost the property at the tax sale to sign a “Quit Claim Deed”. It is worthwhile to try this option even if you must pay the former owner to do so. The alternative Quiet Title Action is expensive, and the Quit Claim Deed may help with the timeline and costs. The Quit Claim Deed may solve the problem created by the tax sale, but it won’t resolve any underlying title problems that may have existed prior to the tax sale. The Quiet Title Action is the better solution.
Bidders at tax sales should consider these issues since tax sales are becoming more popular as people fall further behind on their property taxes. When evaluating the property, one should include the cost of the Quiet Title Action in their analysis off what they can afford to bid on a property. Buying properties with occupants or that have structures of value is also risky since you can’t insure the property during the first 12 months. Bidders could lose all the money they risked if the building burned down those 12 months with no recourse against anybody. Always seek advice from competent legal counsel on this issue before you invest thousands of dollars on a property.