In general, real estate can be one of the best and most secure means of investing your money. In many regions, real estate prices continue to climb year after year. There will also always be demand for housing, so purchasing investment properties can be a means of making regular income for years or lump-sum profits if you fix them up and then re-list them for a higher price.
For some investors, buying homes directly from sellers or banks if the properties are in foreclosure is the fastest route to building a portfolio. However, it can be difficult to find financing if you are just starting out in the world of real estate investing, especially if the property in question isn't in a major city. Thankfully, county tax sales can offer an opportunity for investors to purchase properties or their tax bills for a potential profit.
Unpaid taxes can lead to the loss of a property
Pennsylvania has a special law in place, called the Real Estate Tax Sale Act (RETSA) that allows for counties to sell properties with unpaid property taxes. In essence, RETSA makes any delinquent property taxes the primary lien on a home, meaning they take precedence over even a mortgage. When a homeowner fails to pay taxes, the county's Tax Claim Bureau marks them delinquent starting in May of the following year. The homeowner gets notified in writing about the issue.
If it is not addressed in a timely manner, the property could end up on auction at a tax sale. Investors can then purchase these properties, although the process of evicting the current owners and redeeming the deed after the sale can take some time.
There are two kinds of tax sales in Pennsylvania
The first step in the tax sale process is the upset tax sale. In this situation, an investor or buyer purchases the title to a property with unpaid taxes. However, all other liens against the property, including mortgages or mechanics' liens, remain in effect as well. The new owner will need to pay those debts, so adequate research before the purchase is critical to avoid obtaining a property whose debt outweighs its overall value.
If no buyer is found during the upset tax sale period, the county's Tax Claim Bureau may ask the local court to schedule a judicial sale. These sales take longer to occur, but they can present a great opportunity for investors. Properties sold at a judicial sale will no longer carry any taxes, liens or mortgages against them.
Understand the potential for redemption
It's important for investors to factor in the potential for redemption when deciding what price is fair for a tax sale property. After your successful purchase, the owner who failed to pay taxes on the property will have a full year to redeem the property. In other words, the previous owner will pay the investor the amount paid at auction, other costs such as interest and any liens that remained on the property after the sale.