I have a new article I will be posting on REI Club this week, but here it is for everyone in this forum:
Tax Foreclosure Sales in Texas: Updates To Texas Law!
By: Darius M. Barazandeh, J.D., M.B.A.
The 2003 Regular session of the 78th Texas Legislature passed some changes to tax law as it relates to tax foreclosure sales. These changes were constitutional amendments and can now be found in the Texas Constitution. The majority of these changes will have little effect on your investment strategy and your success. This is especially true if you follow the techniques provided in my course, Texas Houses for Pennies.
In order to be sure you understand what these changes are I will detail them for you in the pages that follow. Keep in mind that many of these changes were designed eliminate any confusion, injustice or inefficiency in the process of administering the sale of tax foreclosed lands in Texas. In each scenario, I will duplicate the exact text of the House Bill and then explain its significance. The changes are discussed below:
[b]House Bill 335
Effective September 1st 2003
A person may not bid on real property at a post-judgment execution sale or tax foreclosure sale without presenting to the sheriff a certificate from the tax office verifying that the person does not owe any delinquent taxes in that county.
A person may not bid at such sales on behalf of another person. Sales conducted in violation of these provisions are void. [/b]
Changes to Bidding Rules:
House Bill 335 was passed by Texas voters and became effective on September 1st 2003. The primary reason this amendment was to make ensure that bidders at tax foreclosure sale were not delinquent taxpayers themselves. This makes a great deal of sense when viewed from the vantage point of the county. Obviously, the county has a vested interest in placing the tax foreclosed parcel back on the active tax role. If the purchaser at tax sale also presents a risk of non-payment then the cycle of delinquency will repeat itself. You should comply with the amendment and obtain a certificate from the tax assessor located in the county where the sale will occur. This certificate will indicate that you are not currently delinquent on your property taxes. It is not a complex procedure but it nevertheless must be completed before the auction. If you have any questions about obtaining the certificates please call me personally at: 713-961-1134.
The second provision of this House Bill is also relevant to the investor. Once cannot bid via proxy (i.e., on behalf of another). The practical significance of this amendment is that the sheriff can only make the deed out to the party who is bidding at the sale. Therefore if ‘John Smith’ is the bidder then the sheriff’s deed must be made out to the order of ‘John Smith’. It is likely that this was done to reduce the risk of a delinquent taxpayer purchasing tax defaulted property since the presence of ‘proxy’ bidders (those bidding on behalf on another) can create some confusion and difficulty when trying to verify who the final owner of the parcel will be.
Once question that I am repeatedly presented with is the effect of this amendment on those who are bidding on behalf of their own company. For example:
Albert is the President of his own corporation, ABC Corp. Albert attends a tax sale in Texas and is not sure if he can bid on a parcel. Albert’s name will not be on the sheriff’s deed but the name of his company, ABC Corp. will be on the deed. Can Albert still bid on behalf of his company?
Yes, Albert can bid on behalf of his company since he is an agent of his company in his role as President. In addition, his company, ABC Corp. is also not ‘another person’ according the language of the Bill. Another area to consider is whether or not Albert should obtain two certificates of non-delinquency from the county: one for himself and once for his company, ABC Corp.
Although this appears to take the scope of the Bill a bit far I recommend that you perform this step. Since this is a new law one cannot be sure how it will be interpreted by those who administer the process (i.e., the sheriff, the constable, the recorder’s office, etc.). I think you should obtain a certificate which indicates that you and your business entity are not delinquent regarding any property taxes in the county where the auction is held. Regardless of whether or not your entity owns any property in that county you should take this additional step.
Redemption Period for Mineral Interests
[b]House Bill 1125
Effective September 1st 2003
The tax foreclosure redemption period on mineral interests is extended from six months to two years [/b]
House Bill 1125 was passed by Texas voters and became effective on September 1st 2003. This amendment seems like it would be quite significant for tax sale investors since it effectively creates another redemption time period for properties with a ‘severed’ mineral interest (don’t worry I will explain what I mean by ‘severed’). In reality it does not really have much impact for most investors.
In order to understand this Amendment we must first acquire an accurate picture of the ‘dual estates’ system which is effect in Texas. In Texas each parcel of property located in the state is really made up of two estates which can each be owned by separate individuals or entities. More specifically there is a ‘surface estate’ and a ‘mineral estate’. The surface estate is the land that you see when you examine a property and it generally begins at the surface and proceeds upward to the sky. On the other hand the mineral estate begins below the surface and extends (at least in theory) to the core of the earth. These two estates, the surface estate and the mineral estate are considered one unless they have been separated or severed by a conveyance or grant to another party. That is to say that unless these estates have been split, the general rule is that if you purchase the surface you also obtain all rights to minerals lying under the surface as well.
However if the mineral interest has been granted or conveyed to another through a mineral deed, for example, then the estates are considered severed. If the estates are severed and the surface estate is sold at a tax sale then the mineral interest owner will have 2 years to redeem their interest regardless of what the redemption time period is for the surface estate. Let’s look at an example:
John purchases a tax sale property located in a rural area in Texas. The property has no homestead exemption filed on behalf of the owner, however the mineral interest was sold to ABC Minerals, Inc. John’s tax sale property will actually have two redemption periods under the new amendment. The ‘surface estate’ will have a redemption time period of 6 months (since no homestead or agricultural use exemption was filed). The ‘mineral estate’ held by ABC Minerals will have a 2 year redemption period.
As you can see this amendment has created an extended period for the owner of the mineral interest to redeem the parcel. This really will not impact most of the purchasers of this course since I have strongly advocated focusing on residential properties located in subdivisions. Unless you are focusing on ranch land or large undeveloped parcels of land it is doubtful that this will affect your strategy at all since city restrictions prevent exploitation and use of subsurface minerals in most cities. If you are in a predominantly rural area and the parcel has a structure that is located at the far end of town and it appears questionable, then you may wish to perform a quick search of the title index. You should simply access the grantor/grantee index (as discussed in Lien Research Guide found in Texas Houses for Pennies.) and check for any conveyances of the mineral estate. The conveyance will be fairly easy to find and will state that it is a conveyance of the mineral estate or a mineral deed.
Email me if you have any questions!!
Copyright 2004
DMB Real Estate Enterprises, Inc.
5050 Ambassador Way, Suite 210
Houston, Texas 77056