SO YOU BOUGHT A PROPERTY AT THE COUNTY TAX SALE? DO YOU REALLY OWN IT? CAN YOU SELL IT?
Every fall Michigan Counties sell thousands of properties for delinquent taxes. The purchasers of these properties acquire deeds for reduced costs – sometimes pennies on the dollar – and receive a “Quit-Claim” deed in exchange. The purchase of a property from a tax sale can be a great investment but it also comes with some silent risks.
Q: What Did I Just Buy?
A: Maybe a Lawsuit.
Quit-Claim deeds merely give the purchaser whatever title the County had – if the County had a bad title, then so does the purchaser. Common examples of issues that may cause defects in the County’s – and hence your – title:
- Did the county conform to Michigan’s strict laws for the tax foreclosure process?
- The county is required to give the delinquent tax payer a significant amount of notice and due process before foreclosing, and even then the delinquent taxpayer has a right to redeem the property.
- SOMETHING AS SIMPLE AS A MISSSED MAILING OR POSTING IN THE PROCESS CAN RENDER THE TAX DEED VOID IF CHALLENGED.
- Michigan’s Tax laws seem to indicate that an aggrieved homeowner is precluded from suing the tax-deed purchaser to recover the property – See MCL 211.78(l) – but that is far from the case.
- MCL 211.78 (l) was found unconstitutional by the Michigan Supreme Court in In Re Wayne County, 478 Mich 1 (2007) where the foreclosed owner was deprived of due process. That means that the deed you just bought is subject to recapture by the foreclosed homeowner at any time prior to the expiration of the statute of limitations.
- Jones v Flowers, 547 US 220 (2006), a United States Supreme Court decision has also invalidated tax sales where a state or county has failed to take “additional reasonable steps” to notify the owner where the foreclosing entity had knowledge that the person was not receiving notice.
- Did the taxpayer redeem or otherwise make a payment arrangement with the County prior to the sale to you?
- It is not uncommon for Counties to enter into agreements with the delinquent taxpayer to work-out the delinquency during the tax-foreclosure process yet still inadvertently foreclose and sell the property.
- These taxpayers have the ability to challenge the validity of the tax sale based on these agreements.
Q: Can I sell or get a loan on a property I acquired at a tax sale?
A: No, not without significant hurdles in time and/or process.
- When you try to sell or finance any piece of real estate in Michigan you go through a process called underwriting where the title company researches the ownership of the property and determines if there are any problems in the chain of title that could affect ownership. It doesn’t matter whether something is likely to happen – the underwriter is looking for potential problems; potential problems
means the underwriter refuses to insure the title and/or the financing – and hence no sale or loan. - Tax deeds present a unique problem for underwriters because of the issues identified above and the possibility that a foreclosed tax-payer can come back to challenge the tax deed. Below are excerpts directly from national title companies’ underwriting guidelines pertaining to tax sales:
Because courts may be sympathetic to an owner that lost his property for pennies on the dollar, and as equity abhors a forfeiture, tax sales, are often set aside. The slightest defect in the tax sale may cause it to be vacated. The procedures or the implementation of procedures for a sale of real property for non-payment of taxes and the validity of tax sales are often attacked even if a sale was held in strict compliance with all state and local laws based upon failure to give proper notice as required under the Due Process Clause of the United States Constitution. For these reasons it is the policy of the Company not to insure property where the title search reveals that the title is derived from a tax sale that occurred less than twenty years before the effective date of the search. – Agents National Title. www.agentstitle.com
Generally speaking, underwriters of title insurance will require one of the following to insure a transaction coming out of a tax sale: 1. The tax deed holder must file a Quiet Title Action and let the appeal process run out; or 2. The prior owner (who lost the property) must Quit Claim their interest in the property to the tax deed holder. If a cloud on the chain of title shows a tax deed, it must be at least 20 years old to consider insuring over it. Access Title Agency.
Q: How Do I Prevent Challenges to my Deed and Underwriting Issues?
A: Quiet the title.
- A Quiet-Title Action is a lawsuit that asks the Court to issue an order that says two things: (1) the County did everything right in the tax foreclosure process; and (2) the deed I received from the County is superior to the foreclosed tax-payer and anyone claiming through him (including any prior mortgage).
- The Quiet-Title Action takes an average of 2-6 months to complete and provides you with the order necessary to prevent challenges to the validity of your deed and underwriting issues stemming from your tax-sale purchase.
This article is not intended to replace the independent advice of an attorney. You should consult an attorney to review your independent situation. Our office would be happy to assist you and answer any questions you may have.