Tax sale property is real estate sold to recoup property taxes owed to the municipality. When a homeowner cannot pay their property taxes, after two years of unpaid taxes, the municipality takes the property and puts it up for sale to get what is owed to them.
There are many ways to determine and define what a property sold for delinquent taxes is. If you are considering buying a tax-delinquent house, here is what you need to know about what to expect.
An Introduction to Tax Sale Property
All property types must pay property taxes. A tax sale home can be anything from a residential house in an average neighbourhood to rural properties, vacant land, undeveloped land, commercial and industrial lands, cottages, islands, farmlands, waterfront properties, and more.
There are different policies based on each region. The Ontario tax sales may differ from the guidelines in another province or country. A municipality does not take possession of property with taxes owed. Instead, it registers a Tax Arrears Certificate for the property, allowing it to be sold by public tender or auction.
It is important to note that a tax sale is not the same as a foreclosure. A tax sale home is not considered a foreclosure property. It has nothing to do with the mortgage or financing or the mortgage lender or bank.
A Homeowner Can Still Regain Their Property
Until a transaction occurs where homeownership is signed over to the highest bidder of an auction or public tender tax sale, a prior owner can still pay the fees owing and have a property sold for delinquent taxes returned to them. This is only possible if it is done within the grace period.
Properties Sold for Delinquent Taxes Are Sold As-Is
All tax-sale homes are for sale as-is. The municipality does not offer a warranty or refund, and there is no guarantee of their condition, property value, vacant possession, access, or suitability for an intended use. It is up to the bidder to research the property’s value.
No Home Inspection for This Type of Property
The existing homeowner does not need to inspect a hopeful bidder, and you will rarely get one. Therefore, a bidder will not know the actual state of a property sold for delinquent taxes. There are risks here. It could require upgrades and repairs, be irreplaceably damaged, or be fine.
Likely Need Repairs and Updates
A property in this state may require repairs, updates, remodelling, and renovations. Properties sold at tax sales are sold as they are. The local government makes no promises about whether the property is in good shape, how much it’s worth, or whether it’s right for you.
Buyers should be ready to fix or update the property to make it comfortable to live in. Since you can’t get a home inspection, anyone buying one of these properties risks dealing with problems not known beforehand. Research before bidding.
When bidding, be prepared to set aside some money to make a property livable. Without an inspection to tell you what work needs to be done, you won’t know until you walk through the front door.
Mortgages and Claims Are Stripped
Any mortgage attached to the property is removed when a house is sold due to delinquent taxes. Liens and claims are removed, except for Crown interests. It is best and strongly advised for any investor considering bidding to complete a title search. This will inform them of any liens against the property.
What A Municipality Will Charge
A tax sale property is put up for sale with a minimum bid amount. This covers all taxes, penalties, interest, and reasonable costs incurred by the municipality relating to the home. When you buy a property sold for delinquent taxes, you pay to clear all these fees in exchange for ownership.
Come with the Cash Ready To Buy
A property sold for delinquent taxes is not mortgageable. You must have the financing in hand. Ideally, this is cash, a certified cheque, or a bank draft. The rules vary depending on the municipality. However, ensure funds are available to complete the sale quickly.
No Guarantee of Return-On-Investment
As with any asset, not every tax sale home is a winning investment opportunity. Not all will provide a fair return. Do your research. Some will be profitable and provide a return, while others will not. Know your goals and risk tolerance before entering the market for a property with delinquent taxes.
No Successful Bidder
Some tax sale homes are put on auction or public tender multiple times because no one bids successfully on them. If there are no bids on a property, a municipality may do one of several things. They may sell it again at the next tax sale, allow the prior owner to make redemption payments in installments, or extend the redemption period to recoup costs.
Tax Sales May Vary
Selling properties through tax sales can vary quite a bit depending on your location and the local rules. Take Ontario, for instance, where tax sales might differ from elsewhere. Knowing these differences is essential if you want to buy a property that’s behind on taxes.
Cities sell these properties by asking for bids, or in other cases, they’ll have an auction. The amount you need to bid, and other rules can be different, too. Make sure to look into the details of where you’re buying from.
Remember that tax sales are not the same as foreclosures. Tax sales just try to recover taxes. They don’t deal with mortgages or banks. When buyers understand what makes them different, they can buy at a tax sale better. They can also make smart choices.
