When a homeowner or commercial property owner owes past-due property taxes in Illinois, their county government may after a certain period of time decide to sell off the rights to the past-due taxes at a tax sale via a tax sale certificate. As a real estate investor, the prospect of purchasing this lien on the property likely entices you. Tax liens are often inexpensive, and the minimum bid usually reflects the amount of back taxes due owed for that particular tax year that is being sold off. Yet, tax deed foreclosures have risks, and you must know what to look out for if you want to avoid a costly mistake.
Property owner’s right to redemption
You may believe that after you buy a tax certificate, that the property it is associated with immediately belongs to you. However, Illinois gives property owners and other lien holders a right to pay you back and “redeem” their unpaid property taxes. If a property owner redeems then they will be paying you the full amount of what you paid at the tax sale along with the interest you bid on the tax sale. Illinois does not give a property owner unlimited time to pay you back. If they fail to pay the back due taxes during this redemption period, you must submit very specific notices to the county clerk and other entities of their nonpayment. You must file a petition to apply to obtain a tax deed for the property in your name. With such specific requirements that must be strictly complied with such as process would require you to need an attorney to ensure your rights and interests are best protected. If the court rules in your favor, you will then have the option to take possession of the property.
Fixing title defects
If you buy a tax sale certificate, its title may have some defects. It is important to secure and work with a title company that has experience in working with tax deeds. It is always recommended that a thorough title search be taken prior to the beginning of the foreclosure process so the buyer understands what liens or defects may be recorded against the property they are seeking.
Determining an appropriate price
Some investors fail to research the properties associated with the tax certificates they buy. Tax lien foreclosures come with caveat emptor – Latin for “let the buyer beware” – warnings, meaning it is up to the purchaser to perform their due diligence. Failing to heed this warning could lead you to overpay for a lien on a property in poor condition.
To protect yourself, you must research the value of the property associated with the tax lien you want to buy – as well as those surrounding it. You may also want to drive by the property to make a rough determination of its condition. Based on these details, as well as the property’s minimum bid, you can determine a price range you feel is appropriate to spend on its tax lien.
Please contact our experienced attorney at Buckley & Buckley so she may help guide you through this complex and exciting new venture into your investing.