So You Are Thinking About Buying Tax Sale OR Land Bank Property
These prices are GREAT!!!!!
We see the prices at tax sales or the price of property offered by the Land Bank and we think that we cannot pass up these opportunities. Virtually all Land Bank properties were acquired by Shelby County by county purchase at a tax sale. Indeed these may be really good values. There is a reason the price is often so good, the title is often not insurable by title underwriters.
What difference does that make?
If you are paying cash and will not need to use the property as collateral then purchasing at a tax sale or from the land bank may be a viable option for you. But be aware that any lender you approach is going to require title insurance to make you a loan as are potential purchasers who may desire your property. You also run the risk that down the road the prior owner or the heirs of the prior owners challenging the tax sale and taking the property back.
The reasons that tax sales are often uninsurable are complicated and technical. Title insurance underwriters have taken a hard stand for years and the options for getting title insurance and insurability of the title is getting harder and harder. Tax sales may be set aside YEARS after the sale even years after the redemption period has run. The investor can lose the value of repairs and improvements made to he property as well as other lost opportunity costs.
You don't not get any type of warranty of title in your deed. The deed from the tax sale or land bank is merely a Quit Claim deed which does not even say that the seller (city or county) owns the property. A Quit Claim deed conveys whatever interest the grantor currently has in the property, if any. The grantor only "remises, releases and quitclaims" his or her interest in the property to the grantee. No warranties or promises regarding the quality of title are made.
Be very careful when considering these investments and have your eyes open. Consider the ramifications of having your capitol tied up in real estate that you may not be able to sell or use as collateral for a loan.
Title Underwriters start from the position that they will NOT insure titles containing a tax sale in the chain of title. As stated, this severely limits the options of the investor. There may be instances where you can get title insurance on property that has been through a tax sale but special procedures and underwriting apply.
As an example, see the Underwriting Memo from First American Title below to its title agents throughout Tennessee. Other title underwriters have similar positions as you can see in this Claim Alert from North American Title from North American Title Insurance Company (also below). Thank you to North American Title for permission to circulate this memo.