It’s long been an American dream to own one’s very own home and a tax sale may be a way to achieve this. Several years ago, real estate prices kept climbing higher than most people had thought possible. Homeowners watched their property values climb by tens of thousands nearly overnight. House prices were becoming more and more difficult to qualify for in the cases of first time homebuyers. Their savings accounts just weren’t able to catch up. But then the bubble burst and property values plummeted. This was terrible news for buyers who purchased at the top of the bubble. Many homeowners found themselves with houses they couldn’t afford and mortgages that were steeper than what the places were actually worth. Jobs, retail and business lost steam and many foreclosures occurred.
When a house goes into foreclosure, the payments are no longer sent into the lender by the homeowner. Mortgage payments are comprised of principal, interest, taxes and insurance. The lump sum is mailed in with a coupon and the bank distributes the funds to the appropriate places. The banks keep the principal and interest. The insurance company gets their portion and the county treasurer received the property tax installment. When no monthly payment was sent it, no one received the funds due. When property taxes become delinquent, the homes may be repossessed and sold to repay back taxes.
Property taxes are collected by every county municipality and doled out to pay for the community’s services. These services are what makes a community and neighborhood desirable and adds to the value of the real estate. Examples of services include public schools, community colleges, parks, landscaping, courthouses, libraries, police, firefighters and sheriff departments.
This is an unfortunate circumstance for the individuals who lose their homes. For first time homebuyers this may be the flipside of the coin. The tax sale may be their golden opportunity. But it is imperative that investors do their homework in order to be assured that what they buy is indeed a wise investment. Here are some things to think about:
– Location: Is the house in a safe and desirable neighborhood. A rule in real estate buying is threefold: location, location, location. This is one aspect of a residence that cannot be changed.
– Structure: Is the dwelling in good structural shape? Does it have a solid foundation? Is the roof in functional shape? Are the electrical and plumbing components safe and usable?
– Cosmetics: What cosmetic remodeling needs to be done to make the place habitable? This is secondary to the structural issues, but it’s still important. Adding up the costs of flooring, paint, window or door replacement, and landscaping will give the buyer a better idea of what the property will actually cost in the long run.
– Finances: Properties bought at auction must be paid for immediately upon the acceptance of their winning bid. A buyer must have cash in hand or financing ready to hand over to the auctioneer.
After doing the homework, a first time home buyer may acquire a smoking deal through a tax sale auction. What was once a sad situation for the person who lost their home can become a wonderful home-sweet-home for the one who takes it over as theirs.