Property Tax Redemption

Property tax sales can be great place to investment properties, however Buyer Beware, for the reality of purchasing property at the courthouse steps can be a nightmare should one not know or be familiar with the legal realities surrounding these purchases. The former owner of real property sold at a tax sale may redeem the property within a certain period of time, assuming the property meets certain criteria, pursuant to the Texas Property Tax Code §34.21.

According to Texas Property tax Code §34.21(a):

The owner of real property sold at a tax sale to a purchaser other than a taxing unit that was used as the residence homestead of the owner or that was land designated for agricultural use when the suit or the application for the warrant was filed, or the owner of a mineral interest sold at a tax sale to a purchaser other than a taxing unit, may redeem the property on or before the second anniversary of the date on which the purchaser’s deed is filed for record by paying the purchaser the amount the purchaser bid for the property, the amount of the deed recording fee, and the amount paid by the purchaser as taxes, penalties, interest, and costs on the property, plus a redemption premium of 25 percent of the aggregate total if the property is redeemed during the first year of the redemption period or 50 percent of the aggregate total if the property is redeemed during the second year of the redemption period.

For the sake of simplicity, in order for the former owner to redeem the property that was sold off at the tax sale the following criteria must apply:

• the redeemer must have been the owner at the time of the tax sale; AND
• the property must have been the residence homestead of the redeemer, OR
• the land was designated for agricultural use, OR
• the redeemer was the owner of a mineral interest that was sold at the tax sale.

If those criteria are met, the former owner may redeem the property within two years from the date the purchaser’s deed is filed for record. That is, the redemption period begins when the purchaser’s deed is filed for record with the county within which the property lies.

The former owner may redeem the property within the first year of the redemption period by paying the purchaser (1) the amount the purchaser bid for the property, (2) the amount of the deed recording fee; (3) the amount paid by the purchaser as taxes, penalties, interest, and costs on the property; and (4) a 25% redemption premium on the aggregate total. See Texas Property Tax Code §34.21(a).

To illustrate, say that Mr. Brown’s property, his residence homestead, is sold at the Tarrant County tax sale on January 1, 2016 to Mr. Green. Mr. Green bid $25,000.00 for the property. Thereafter, Mr. Green paid $5,000.00 to the taxing authority for taxes that accrued after the tax foreclosure, but prior to the tax sale. On January 15, 2016, a deed was filed in the Tarrant County Real Property Records and the Buyer pays the $20.00 filing fee. Once taking possession of the property, Mr. Green is given notice that the property is in violation of a city ordinance and is forced to spend $10,000.00 to bring the property up to code, including a new roof, broken windows and a dangerous gas leak.

Since Mr. Brown was the owner of the property at the time of the sale and that the property was his residence homestead, he has a redemption right and may redeem the property from Mr. Green.  In order to do so, he must pay Mr. Green $50,025.00. That is:

Purchase Price $25,000.00

Taxes/Penalties $ 5,000.00

Deed Filing Fee $ 20.00

Costs $10,000.00

Aggregate Total $40,020.00

25% Premium $10,005.00

Total Due $50,025.00

The former owner may redeem the property during the second year of the redemption period by paying the purchaser (1) the amount the purchaser bid for the property, (2) the amount of the deed recording fee; (3) the amount paid by the purchaser as taxes, penalties, interest, and costs on the property; and (4) a 50% redemption premium on the aggregate total. See Texas Property Tax Code §34.21(a).

For purposes of determining the redemption price due to the purchaser of real property sold at a tax sale, under Texas Property Tax Code §34.21(g)(2)(A)(i)-(v), the Texas Legislature has defined “costs” as the amount reasonably spent by the purchaser for maintaining, preserving and safekeeping the property, including the cost of:

• property insurance;
• repairs or improvements required by a local ordinance or building code or by a lease of the property in effect on the date of sale;
• discharging a lien imposed by a municipality to secure expenses incurred by the municipality in remedying a health or safety hazard on the property;
• dues or assessments for maintenance paid to a property owners’ association under a recorded restrictive covenant to which the property is subject; and
• impact or standby fees imposed under the Local Government Code or Water Code and paid to a political subdivision.

Buyer must beware and not ignore the statutory two year redemption right.  Some unseasoned investors may begin remodeling the entire property subject to redemption with purely cosmetic upgrades; granite countertops, top of the line fixtures and faux finishes throughout.   Should the former owner come to the investor prior to the expiration of the redemption period, the prior owner will likely have a windfall if the unseasoned investor willingly remodeled the property while ignoring the redemption period .   Many renovations performed by house flippers would not be the prior owner’s obligation under the Texas Property Code calculation of the redemption amount.   It is advisable that should one be interested in investing in Tax Foreclosures, prepare to hire an experienced investment real estate attorney for guidance since things like federal tax liens, other encumbrances and redemption rights can wreak havoc on a newbie investor thinking he or she scored big on the courthouse steps sale.

If you are a real estate investor and are looking to purchase properties at the tax sale it is important to know what you are getting yourself into. Contact the tax ale redemption real estate attorneys at The Farah Law Firm, P.C. to ensure that your investment is protected.