The answer: yes. When a property becomes overdue on its taxes, sooner or later the government will foreclose and sell the property to the highest bidder at auction. When the grace period to pay the taxes off expires, that bidder will apply for a deed to the property and will be the free and clear owner. What does this mean for the bank?
What this means for the bank is that if they don’t pay the delinquent property taxes, they will lose their stake in the property. Tax sale wipes mortgages clean (although the mortgage company may be able to sue the owner and obtain a judgment at this point). In order to avoid losing their right to foreclose on the property, banks will pay delinquent property taxes owed to the government. Of course, the owner will then owe that money to the bank.
This is why property tax payments are often rolled into your mortgage payment. The bank wants to be on top of what’s going on with the property tax payments. In this case, they will know if you stop paying your mortgage that the property taxes are still being paid (by them). Then, they will foreclose on the property and liquidate it themselves – also generally at auction.
However, this is not always the case. If you have a mortgage, you know that it’s been sold and sold again, over and over, to different companies. Sometimes paperwork gets lost in the shuffle, and the property taxes aren’t being paid by the bank, the property gets lost to tax sale and clerical errors and negligence on the part of the bank result in them losing their property to the government for taxes.
99% of the time, however, when a property makes it all the way to tax sale, that means it’s free and clear. This is why tax sale investing is such a hot topic these days – there is a lot of tax foreclosure going on in this economy, and much of it is free and clear property. But bidding at tax sale is a losing proposition. So how do smart investors buy this property?
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