Primer on Tax Deeds in Georgia

Tax Sales

A tax sale is the forced sale of real estate property  by a governmental entity for unpaid taxes by the property’s owner.

Each estate has laws about tax sales; the significant differences are if they have tax lien sales or tax deed sales. A tax Lien is just the sale of the debt owned by the property owner, a tax deed, on the other hand, is the sale of the actual property.

The state of Georgia, where we mostly operate has tax deed sales. The way that tax deeds work in Georgia is very favorable to the investor.

 Counties would put the properties for sale after 1 to 3 years of non-payment of taxes. Then, they do so on a public auction, and the properties are sold to the highest bidder. 

In most cases, the price paid for the properties is a fraction of the market value, and how much of a fraction does vary by the type of property, the county, and just the draw of luck. We have purchased properties for as little as 10% of their ultimate market value but mostly they tend to fall in the 50% to 80% range.

Once the sale is made, the county gets the money, pays the taxes due, and then turns the excess funds to the former owners or mortgage holders.

Technically, in Georgia, the property buyer gets a defeasible tax deed, which means that the former owner or other entity with interest in the property can get it back by redeeming it.

Other Liens and mortgages are wiped out

One of the critical aspects of tax deeds is that if there is a mortgage on the house or any other lien, the tax sale wipes out the debt. However, the lien holders have the right to redeem the property and would have to pay the fees the owner would have to pay if they want to obtain the property back.

Foreclosure of Right to Redeem

In Georgia, the tax deed buyer only has access to the property and has the right to collect rent once at least a year has passed by and not until a foreclosure of the right to redeem is performed.

The former owner has a whole year to redeem the property. To do so, they have to pay the investor the money they paid plus a 20% fee if they pay within the first year. They will have to pay an additional 10% each year or a fraction after that. (These rates are among the highest in the nation)

Once a year has passed, the buyer of the tax deed can foreclose on the right to redeem, and after it has done so, it has a fee simple title. However, until that process is terminated, the property can still be redeemed.

Quiet Title Action

A tax deed sale puts a “cloud” on the title, and after the foreclosure of the right to redeem, even though the tax deed buyer now has a simple fee deed, title insurance companies will not insure the properties unless a quiet title action is done in the courts system “to clear up the cloud.”

In this judicial process, the courts examine the circumstances of the tax sale and the foreclosure of the right to redeem. It also makes sure that the former owners are notified. The courts then issue a judgment declaring the tax deed buyer the property’s legitimate owner.

At this point, title insurance companies will insure the title, making the property marketable.

Tax Deed ROI

If the property is redeemed within the first year, the buyer makes 20% of its investment. In most cases, though, if there is a redemption, it happens during the foreclosure of right to redeem process, as the buyer must notify the interested parties. That foreclosure is traditionally done at the beginning of the second year, and as per Georgia code, the fee to redeem increases by 10%, making it a 30% redemption fee after about 14 months of investment.

A 30% percent return is good, but you can make real money if the property is not redeemed, provided that bought property was below market value. 

Our own Experience

After several years of buying properties at tax sales, we can predict with great accuracy,  the chances of redemption versus the chances of us keeping the property. So, naturally, we prefer to purchase properties that we can fix up and resale, but we are open to making 30% in 14 months when the opportunity presents itself.