Question about tax sales in CA

Foreclosures, Short Sales, Tax Foreclosures
1

Hi there! I am trying to get into the tax deed sale game here in CA. There is an auction coming up and I have a few properties that I want to obtain.

On another board, they have suggested approaching the owners, offering them a few grand to sign a QCD over to me, I go to have it recorded, pay the tax amount off and the property will be mine. Of course, I wil do my due diligence regrding what is covered when I pay, IRS tax liens, etc.

My question is that I know that the tax lien trumps mortgages, etc. But if there is a mortgage when I pay it how can they sign it over to me if they really don’t own it, the bank does? Or is this only for someone who owns their house? I am assuming that I can find this out by calling the county or doing a title search, correct?

Thank you!

2

The owners can sign a quit claim deed over to you but all that really does is convey their interest to you. If they have no interest, there is nothing to convey. Along with this conveyance of title comes all of the liens. So, if they had a mortgage, you get the mortgage also.

Generally, a lender will make a bid on a foreclosure (in California a trustee sale) up to the amount of their lien - how much is owed them. So on a tax sale, there probably will not be a mortgage lien on the property.

On your other point about the bank owning the property - no they don’t. The lender merely has a lien on the property. The owner still owns the property - not the bank. That is why the owner can give a quit claim title.

The cleanest way to find out possible liens is to have a title company research this for you. You can go to the county assessor’s office and look for this information but if you are not skilled in this you may miss something.

In my experience almost 100% of these sales never are sold because the owners manage to pay their taxes before the auction date.

3

Thank you for answering. I think I miscommunicated myself in the bank’s role.

I was thinking that since they have a lien on the property, how can the person sign over a QCD to me and wipe it out when I pay off their taxes? I believe your answer is that they can not. But if they own the home then they can, correct? In CA when you pay off a tax lien, it trumps all but the IRS and possibly a few other things, including mortgages. My next step is to go down to the County office to check out the title and contact the IRS.

In the county I am looking in there is not as high redemption rate as in others. Some of the properties I could have gotten at the last sale if I was up on them at the time they do them every 6 months). I have a lot of properties that I am interested in, so I won’t be disappointed if I only pick up a few. I was really trying to see if some of the homes are owned free and clear and just own taxes, then I won’t have to battle at the auction. I can just offer tehm some money to move, have them sign a QCD and be done with it.

Also, wouldn’t it be even better to have them sign a grant deed or warranty deed? I looked at the post again and I think they were only talking about land, not houses, so maybe that is why they could do it that way.

4

you can not wipe out the mortgage becuase you are not foreclsoing on the property (which is what a tax sale really is).

in Calif, you should really use a grant deed to convey the title. A QCD is really pretty weak.

based upon your post, you must be looking one of the non-metro countries in Calif as tax sales near the population centers are typical a feeding frenzy of people overbid (i.e. pay close to retail). most of the stuff really worth anything get redeemed as previously mentioned.

in all, your plan is not a bad one(i’ve consider it myself) although if the owner owns it free and clear, be aware the onwer get the overbid amt. so in some ways, it a kind of “free” auction service for someone who has a piece of land that is kind of worthless in their eyes. I know people who have let property go to tax sales for this exact purpose.

5

What these people on your other board are suggesting is that you circumvent the normal way of acquiring a property, and, by doing so, save yourself money. Obviously, if you don’t use a real estate agent and don’t get title insurance you will save money but…what are the costs if problems develop in the future?

As to your remarks about warranty deeds - Warranty deeds are not common in California because of the widespread use of title companies. Under a warranty deed the grantor (the owner) guarantees that he/she has good title and agrees to defend the title and to be liable if the title is defective. A title company essentially does the same thing but they have more resources to examine the title and more money to pay if there are problems later on.

You should consider getting title insurance. Among other things included in the coverage of a standard title policy (California Land Title Association - CLTA policy) the title company will insure:

  1. Against forgery
  2. Against lack of capacity of the grantor (what if the owner has been adjudicated insane or was under the influence of mind altering chemicals when the deal was made?)
  3. Against an undisclosed spousal interest (there could be a wife or husband with community property interests)
  4. Against failure of delivery of a prior deed
  5. Against federal estate tax liens

This type of policy may cost you $1,000 or more but it would be worth it if legal issues come forward in the future. For example, in California a person generally has three years from the date of discovery to file legal action. Suppose that there was a wife or husband married to the owner when the property was first acquired. If, four years after you buy the property the former spouse discovers the transaction, they have three years to contest the deal – they has superior rights under the community property law.

Under a quitclaim deed the grantor transfers only the interest that the grantor has in the property and makes no warranties of title. Quitclaim deeds are usually used to clear title from grantors who have a possible or disputed interest.

Anyone can issue a quitclaim deed any time they want to. Again, a quitclaim deed only transfers their interest - it makes no guarantees.

You can give me a quitclaim deed for all of the property owned by Universal Studios in California but this deed is of no value since you probably have no legal interest in that property.

If you can buy the property for a few thousand dollars I would suggest that you get an agent to write the offer. Offer to pay the agent a small sum, say $400-$500. By doing this, a lot of the legal responsibility has moved to the agent’s brokerage. If there are problems later you have cause for legal action against the brokerage and he has errors and omission insurance.

Next I would get a title policy. This is insurance against the unknowns that may pop up in the future (i.e. tradesmen currently working on the property who have a right to file a lien, etc.).

I don’t understand what you mean by “trump”. Certain liens have a higher priority than others but paying off a tax lien does not get rid of the other liens.

6

I was just about to post my reply when someone else answered. I will try to answer the new questions.

This is not a foreclosure sale, it’s a tax deed sale. No interest is at stake here, it’s the land or land and house. Since it is a tax deed sale, if I win, the mortgage is wiped out along with any other lien except usually the IRS. I have checked this out numerous times through numerous sources and it indeed is true. Many mortgage companies do pay the taxes off in order not to lose their investment, but it still does happen. I use the word trump because I play cards a lot, sorry (or maybe because Donald Trump puts his name on so much, the name Trump is burned into my memory).

I will know more once I do title searches. I know that a few of the homes are newer, they are most likely mortgaged and I’ll have to take my chance at bat at the auction. However, I know some of the older ones might be at the point of being owned. And those are the ones I was thinking of approaching the week before the auction.

So that said, Tesch, you did not mention grant deeds and I am supposing that this is because the way you said to do this is better for me. Oh, by the way, they tell you to hold on to it for a year because that is how long the owner has to prove that the sale was in some way wrong. Also, most companies will not give title insurance due to that fact, which is why it was recommended to get a QCD.

Thank you again for the replies, I appreciate it.

7

It seems that you were correct. I pulled the following from the tax collector’s website.

Can I obtain a property available at the public auction tax sale by paying the delinquent taxes thereon prior to the tax sale date?
No. Legal title to a tax-defaulted property subject to the Treasurer-Tax Collector’s power to sell can be obtained through the Treasurer-Tax Collector only by being the successful bidder at the tax sale.

(The above would take some interpertation.)

The successful bidder may take possession of a property after the Tax Deed to Purchaser has been recorded. However, most title companies will not insure the title until one year after the tax sale deed is recorded. Legal action to challenge a tax sale must be brought within one year of the tax sale deed recording date. Therefore, it is not advisable to make any improvements to the property during the first year of ownership. (You were correct about this)

Do liens or encumbrances on tax sale properties transfer to the new owner through a Tax sale property purchase?
Chapter 7, Section 3712 of the California Revenue and Taxation Code states: “The deed conveys title to the purchaser free of all encumbrances of any kind existing before the sale, except:
(a) Any lien for installments of taxes and special assessments, which installments will become payable upon the secured roll after the time of sale.
(b) The lien for taxes or assessments or other rights of any taxing agency which does not consent to the sale under this chapter.
(c) Liens for special assessments levied upon the property conveyed which were, at the time of the sale under this chapter, not included in the amount necessary to redeem the tax-defaulted property, and, where a taxing agency which collects its own taxes has consented to the sale under this chapter, not included in the amount required to redeem from sale to the taxing agency.
(d) Easements constituting servitude upon or burdens to the property; water rights, the record title to which is held separately from the title to the property; and restrictions of record.
(e) Unaccepted, recorded, irrevocable offers of dedication of the property to the public or a public entity for a public purpose, and recorded options of any taxing agency to purchase the property or any interest therein for a public purpose.
(f) Unpaid assessments under the Improvement Bond Act of 1915 (Division 10 [commencing with Section 8500] of the Streets and Highways Code) which are not satisfied as a result of the sale proceeds being applied pursuant to Chapter 1.3 (commencing with Section 4671) Part 8.
(g) Any federal Internal Revenue Service liens which, pursuant to provisions of federal law, are not discharged by the sale, even though the tax collector has provided proper notice to the Internal Revenue Service before that date.”
(h) Unpaid special taxes under the Mello-Roos Community Facilities Act of 1982 (Chapter 2.5 [commencing with Section 53311] of Part 1 of Division 2 of Title 5 of the Government Code) that are not satisfied as a result of the sale proceeds being applied pursuant to Chapter 1.3 (commencing with Section 4671) of Part 8.”
Note: A title search initiated at the prospective purchaser(s)’ expense should reveal any liens or encumbrances on a property in the tax sale.

When does the right of redemption on a tax-defaulted parcel subject to the power to sell, cease?
The right of redemption on a tax-defaulted parcel subject to the Treasurer-Tax Collector’s recorded Notice of Power to Sell ceases at the close of the business on the last business day prior to the sale. There is no extended right of redemption in the State of California.

Are Internal Revenue Service liens different from other liens?
Yes, when property is sold at Public Auction on which the IRS holds a tax lien the United States has the right of redemption of one hundred twenty (120) days from the date of such sale (26 USC §7425(d) and Revenue and Taxation Code §3712(g)). The IRS will pay the actual amount paid for the property by the bidder, plus interest at 6 % per annum from date of sale.

8

Thank you. I appreciate it.

I am trying to narrow down where I want my money to go. I will go to the auction to check it out even if I can get the properties I want to before. If they sign it over to me and they own the land and home free and clear, then I can get title insurance and all of the other worry is unnecessary.

This weekend I am doing drivebys of the properties, next week I am going to the County to do title searches and contacting the IRS.

It’s my first auction, so I am nervous. There is one next week that I will go to so I can get some experience, but it’s not in the same county.

Once again, thank you for the replies.

9

Just wanted to thank all of you! While I am not in CA, I am in TX a lot of the same general rules apply here and I am also doing my first auction in a few weeks. Thanks for the topic, it was nice to read how it is in other places and also how similiar it can be.

Teresa

10

I have friends and family in TX, I plan to reach out there after I conquer CA…LOL! glad my questions could help. Never anything wrong with asking a few questions and getting some answers!