Real estate investing through Delinquent Tax Sales is not for the faint of heart or for those short of capital to lose.
There are a variety of ways to invest in real estate. Examples include rental properties, Real Estate Investment Trusts (REITs), flipping properties, and even owning one’s own home. And then there are Delinquent Tax Sales. In Mississippi, the month of August is tax sale month.
There are two times during any given calendar year when the subject of unpaid property taxes is sure to make the news. The first is February-March, when the list of properties and their owners is made public. The second is August, when said properties are sold at auction to pay back taxes.
Each year there is no shortage of news stories about unpaid property taxes and their owners. Public officials often come under the journalistic microscope of scrutiny from their local media. After all, what better news item than the discovery in the public records that an elected official has not paid property taxes? Most will proffer some excuse, pay the taxes, and move on. Others, including some not-so-public owners, will lose their properties. Therefore, it behooves us to understand the process of how a parcel of real estate can be forfeited to the state at a tax sale.
At real estate closings, a common phrase heard is, “Insurance is paid in advance and property taxes are paid in arrears.” That simply means that the property insurance premium is paid before coverage begins and that property taxes are not paid to the tax collector until after the year has ended. In Mississippi, that means that property taxes for the calendar year 2022 are due for payment on January 31, 2023.
What is confusing to many homeowners is that they pay their monthly payment to a mortgage company that collects the property taxes from the monthly payment and then pays them on behalf of the owner in January of the following year. They assume that just because they made the payment to the mortgage company that it was paid to the county tax collector. It almost always is paid. However, errors can occur, and it is the property owner’s responsibility to make sure that payment was made. If those property taxes are not paid, a chain of events goes into effect.
On February 1, interest will begin to accrue on unpaid taxes at the rate of one percent per month. If the taxes are not paid by August, then publication of the delinquency will be made in the local newspaper to give notice that the property will be sold to pay for the taxes. It is at this point that things can really become interesting.
You have probably seen television commercials, print ads, or online ads for information and courses about how to buy property at a tax sale. According to these commercials, there can be big money made in the game of tax sales. Here are just some of the claims by those who want you to buy their course:
– Earn fantastic rates of return on your investment.
– Use the power of compounding to build your wealth.
– Acquire deeds to real estate at unbelievably low prices.
– Buy Low – Sell High.
– Houses for less than $5,000.
– Residential lots for less than $500.
– Earn 18% to 36% annualized yields by investing in government-issued tax lien certificates.
– Learn how to acquire properties before the tax sale from delinquent property owners for pennies on the dollar.
– Learn how to research and acquired properties at tax-forfeited land auctions.
– Learn how to research tax lien certificates before investing. Avoid the pitfalls.
After reading those claims, who could resist wanting to go out and buy property at the tax sale? While it is true that all the above claims could and have happened, those are the exceptions and not the rule.
For example, Mississippi is a state that allows for the redemption of property. That means that a property owner can go to the tax collector and “redeem” his or her property by paying back taxes and interest. When that happens, the investor who bought the property at the tax sale will receive his or her money back, plus interest. But if the property owner does not redeem his property, the investor may get a worthless property with a small chance of ever getting a good enough title to resell the property. In short, buying property for investment at a tax sale is not for the faint of heart or for those short of capital to lose.
For more information about real property tax procedures and tax sales contact your local tax collector.
You may also want to check out the tax collector’s website in your county. Some are very good, while others are rather embarrassing. One of the better ones is that of the Jackson County Tax Collector. Visit their website here. Once there, click on the “Annual Sale of Delinquent Taxes” link.
A final question: Do you know if your real estate taxes were paid for 2022?
Phil Hardwick
