Investigating the latest tax sale in your local municipality, you will quickly discover the risk v. reward dynamic in this home-buying category. Bid on the right tax-delinquent property, and the rewards are high. You get a home at a fraction of the cost! However, it’s rarely that easy. Tax sale homes can have some difficult, complex circumstances attached.
Here is what to know when buying a tax-delinquent property.
What Is A Tax Delinquent Property?
A delinquent tax property is a property wherein the owner has failed to pay their property taxes. Suppose the property taxes remain unpaid for a specified period.
In that case, the government initiates foreclosure and resells the property to the highest bidder to recoup the property taxes owed. These tax-sale homes are often sold far under market value, hence why they’re an amazing deal.
How to Find Out About Tax Delinquent Properties
You can find tax-delinquent properties to buy online in Canada by doing a quick search. New properties come up for bidding daily by public tender or public auction.
The Ontario tax sales details included in the listings do vary depending on the source. The property information often includes how to submit a bid, the minimum bid, and the deadline for accepting bids.
Risks to Buying Tax Delinquent Properties
While you can sometimes find tax sale properties priced 25-50% below market value, there is a long list of risks. If there’s an environmental issue, it can cost thousands to clean it up. You may discover that a land-only sale has no road or right-to-road access.
Many online tales of properties bought on tax sale ended up having very little value to the new homeowner due to it being damaged, falling apart, or with variables making it unsellable.
Research Before Buying
Whether it’s an investment property or you plan to use it as your primary home, buying a tax-sale property takes research. Do your due diligence. While you can’t legally inspect the home, you can look at it from public property such as the road.
You may also want to look at the property’s neighbourhood, what remodelling and repairs may need, and if there’s any clear damage you know about that would need to be fixed.
5. You Cannot Inspect The Home
With a tax-delinquent property, you don’t know what you’re buying. The municipality will provide you with a certain amount of information, but you don’t know if there’s damage, utilities that require upgrading, or even people continuing to live there. All these situations can mean more costs. You’re buying a property sight unseen and don’t have the same protections you do with a standard home purchase where you can outline conditions.
6. There Is More Costs Associated Than The Tax Sale Price
Additional costs may be associated with a delinquent tax property above your bidding. These costs may be items such as the Land Transfer Tax, any required environmental cleanup, utility upgrading that has to occur for it to remain legal, required or voluntary property damage repairs and renovations, and eviction costs if there are people already living there.
7. To Buy A Tax Sale Home, You Need The Funds Ready
In the bid you commit to when buying a tax-delinquent property, you need to have the money ready in cash, money order, bank draft, or certified cheque. After the bidding closes, you get the property if you’ve made the highest bid. At that time, you must provide the funds you’ve committed to and pay the Land Transfer Tax and any other associated fees.
8. Mortgages And Liens On The Property
In a tax sale, most mortgages, liens, and executions on a property are eliminated. However, this doesn’t apply across the board. If there are Crown interests or interests that fall outside of certain parameters, these can continue to impact the home post-sale. Be sure to do a Title Search Summary before you purchase a tax-delinquent property to see any mortgages, interests, and encumbrances that could affect your ability to own the home.
9. The Prior Owner Can Reclaim The Property
Here’s the kicker about tax-delinquent properties. Even if you win a tax sale bid, there is a 6-to-12-month redemption period wherein the prior owner can reclaim full ownership if they pay off the debts owed. Of course, if this happens, you will be refunded your money plus interest, and you won’t have any claim on the property. This does occasionally happen with tax-delinquent properties. With a little patience, though, and lots of research, buying a tax-delinquent property can prove to be very, very rewarding.
