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IN BEXAR COUNTY - SAN ANTONIO TEXAS

THE TRUTH ABOUT TEXAS TAX LIEN AUCTIONS

Editorial by: Vic Gonzalez

Over the past six months, much has been written and advertised regarding the high rate of returns on investments in tax lien auctions in Texas, specifically, Bexar County, Texas which is San Antonio. Many self proclaimed experts are putting out information for a price on the internet and seminars on how to receive up to 50% profit by buying property at the monthly County Sheriff's Sale Auctions. DON'T BELIEVE IT!

The Truth is, there is not that much opportunity for investors at these auctions. The December 2004 Auction in San Antonio -Bexar County, Texas had only 59 properties on the official docket. Of those, 41 were pulled from the auction prior to the scheduled sales event. The remaining 18 properties were vacant lots, small houses under 1000 s.f. and homes with so much damage that demolishment might be a better option rather than rehab. There were over 73 bidders officially signed up to bid at the auction who created a buying frenzy that was emotionally charged and bidding levels went in some cases over the retail value of the property. It gets worse. In 2004 Bexar County offered 672 properties at the Sheriff's Auction. Of those, 348 were pulled prior to the sale. That's a whopping 52% that never made it to auction.

What potential bidders need to understand is that most of the properties sold at auction DO NOT GET REDEEMED by the previous owner. If the defaulted owner could not afford to pay the taxes, then what makes you think they will be able to pay the bid amount plus the redemption premium of 25% or 50%? It just isn't going to happen. What does happen is that the investor is now stuck with a property that may not be rentable or even resaleable, may have additional taxes due against it and may require huge sums of additional capital to repair which when sold may not return even close to 100% of the cost.

I am astonished by what investors pay for property at these auctions. Recently, I interviewed a winning bidder of a property that had a tax value of $4500. It was a vacant lot. His winning bid was $12,000. I asked him why he bid so high and he said that he wanted to build a house on it in the future. I can understand that since it was a long term investment, he was looking at the future value after construction had been completed. What he didn't know was that there were city liens for "clean-up" that added up to almost another $1000 and that the property was "land-locked" with no access from the street. He would have to get an easement from an adjoining property for a price, get the city to approve it, bring utilities such as water, sewage, gas and electricity into the lot which would require re-plating (another $10,000) and if all went well, the property would then be ready for construction once the permits were paid for. What usually happens in situations like this is that the "new owner" finds out that this purchase was a mistake and lets it go back to the county in two or three years for delinquent taxes that he won't pay and the process starts all over again.

I have seen people come in by the bus load from all over the United States specifically for these Sheriff's Tax Auctions. They have money in their pocket and are quick to spend it. They are being sold on a process that doesn't work. But they keep coming. Bexar County is happy to see these "out-of-stater's" because the county gets their money right away and puts the property back on the paying tax rolls. So what if the property has issues. It's not their problem. On the back inside page of the official property list, the county puts a "Notice to Potential Bidders" which clearly states that the sale of these properties is without warranty of any kind. Good Title is not guaranteed. In fact, getting title after the redemption period expires may take years to clear and title companies are reluctant to give policy in most instances. That means the buyer is stuck with the property and is responsible for all on-going costs. Does this still sound like a good investment?

If that doesn't scare you, let me tell you about some DO'S and DON'T'S when it comes to buying property at tax auctions:

• Do your Due Diligence: check the property for existing liens, judgements, notes and other encumberances that may survive after foreclosure. You do not want to buy something that may have additional costs you haven't factored in. This information can be obtained through a title company or a realtor for a fee. (shameless plug) That is also the service provided by this site!
• Do a Consultation with a reputable Real Estate Attorney: If you are going to invest in these type properties, it is wise to meet with an attorney you can trust who is knowledgeable about tax lien auctions in Texas. I have some very reputable attorneys that I can recommend. Send me an email and I will provide them to you.
• Do the Research on Texas Law: If you are determined to invest in Sheriff's Sale Auction Properties, you need to read the law governing this process. Read Texas Property Code and Texas Tax Code before you get started. That should give you valuable information on what to expect if you do buy.
• Do the review on the original lawsuit: Check with the law firm that handles the county law suits for delinquent taxes and make sure that the lien holders were served and that they are aware of the impending sale. If they have not been served, they do not go away and you may be responsible for their payment or the foreclosure may be nullified and it could take months to get your money back.
• Do the review on ad volerum taxes: Property taxes continue to accumulate after judgement has been rendered. If they are not included in the minimum bid, you will be responsible to pay them or additional interest charges and penalties will accrue.
• Don't bid on property you have not seen: This is the biggest mistake investors make. Sometimes the county will list a property that appears to have a house on it. I have seen investors buy high at auction only to find out that the house was demolished some months before and the county has not updated it's records. Sorry if this happens to you,..the county is not responsible for telling you anything about condition or improvement. To make matter's worse, the county will charge the winning bidder for the cost associated with the demolition.
• Don't bother the current occupant of the house and ask for a tour: If the homeowner has been served by Bexar County and is about to lose their home, they will not treat you favorably if you knock on their door. Stay off the property and look from the street.
• Don't speculate on rumors: Getting insider information on expected developments or new factory construction is, in most cases just that, speculation. If you are naive enough to believe a fairy tale about fast property appreciation, then you deserve the rewards of that decision.
• Don't borrow money to invest in these auctions: I have seen investors go and get equity loans on their home to invest in tax sale properties. Maybe they believe the 25%-50% redemption premium is coming. As I said before, most properties never redeem and you will be paying interest charges every month which will reduce you profit considerably.
• Don't pay for Information that is not reliable: I hear about investors who pay thousands of dollars for seminars that proclaim to teach you how to make profit in tax sales. Most of these may have a general idea about the process but do not mentor or train you on the specifics for each county. That is something you will have to learn on your own by being there. Consider partnering with someone in the county who can do the local work for you. (shameless plug) Like me
• Don't buy tax notes over the internet: As silly as this sounds, I have heard stories about investors who do this. Again, if you cannot afford to go to the county and see the property, don't buy it.

I hope the next time someone approaches you on making Big Money on tax lien sales, you will remember this article. While there is opportunity in these investments, it requires a lot of work and is not an easy process to learn. If you want information on reliable professionals who do this business for a living, send me an email or call 210-340-8733. Ask for Vic and I will be happy to steer you to the right resources that tell "The Truth" about Tax Sales in Texas.