Introduction to Learning From Worst Case Scenarios with Nelson Mullins, Part 2
Brian Seidensticker, CEO of Tax Sale Resources, recently hosted a 4-part podcast series with Randy Saunders and Matt Abee of the nationwide law firm Nelson Mullins. Saunders and Abee are experts in tax sales law across multiple states. In this second installment, they elaborated on issues that may fly under the radar of many people just getting started in tax sale investment − underscoring why due diligence and continuing education are essential components of tax sale investment success and profitability.
Beware of Errors and Oversights in the Chain of Title
Going back through the generations, some properties weren’t recorded publicly but through verbal agreements or private family records. When an owner dies, others, including their relatives, may not know who is responsible for paying the property taxes, and it may wind up in a tax sale. Later, people may argue in court that the tax sale should be invalidated or that they have a legitimate claim to the property. So, to avoid problems, you may need to research potential heirs or others and send notifications to many people. That can cost more, however, so you have to decide if the underlying property is worth the time, effort, and extra expense.
Don’t Simply Rely on the County
You may be unable to depend on county officials to perform thorough due diligence and do comprehensive notifications. They may only try to contact the person who lives on the property or whoever is named on the most recent deed in the chain of title. Sometimes, that can fail to receive adequate notification, hurting the tax sale. Again, the investor must determine how much due diligence they will do to avoid challenges that might cloud the title. This happens often in Southern states, as explained by Saunders and Abee. When there are many heirs, it can become a family feud that can get quite messy – and become very costly to you as an investor caught in the middle. Their advice is to anticipate such worst-case scenarios, figure out how you would respond in that situation, and decide whether you can deal with such obstacles and still make a profit.
Learn to Spot the Red Flags
With some experience and awareness, you can also sniff out situations that need to be simplified and unprofitable beforehand. For example, if you see long lists of heirs or estates connected to the property, that may be a red flag. Doing a title search may reveal such pitfalls. There also may be properties without recorded deeds or deceased owners who didn’t record a Will. Therefore, the county may have no information about those with a potential interest in the property, but the court will likely try to respect their legal ownership rights. The judge hearing your case may decide to take away a home belonging to someone the judge knows in the community – versus ruling in favor of an outside investor who is simply buying up multiple tax-sale properties to make a profit.
Mistakes Can Lead to Disproportionate Costs
Making a mistake and doing excessive research and notification can double or triple your investment costs, and you may also have to pay extra attorney fees and court costs. Some counties may have yet to notify the IRS, which happens often in South Carolina, where they may not be required. That means the county could follow the letter of the law in conducting a tax sale but not notify the IRS. Only later does the investor realize they owe a substantial federal tax debt. It may even exceed the marketable value of the property you’ve invested in, but you cannot challenge the right of the IRS to collect from you.
Similarly, a homeowners' association may have liens on the property, which frequently happens in resort communities like those familiar in South Carolina. You may get a great house in a resort at a bargain, only to find out you must pay a hefty golf club membership as a property owner. Be careful if a deal looks too good to be accurate and little competition is bidding for it. There may be a hidden cost. Know the jurisdiction and the local statutes to avoid unanticipated adverse outcomes.
How to Learn More for Greater Success
To learn more, listen to Brian Seidensticker's in-depth podcast conversation with the experienced attorneys from Nelson Mullins. You can also access the other three podcast interviews in the multi-part series, Learning from Worst Case Scenarios, by clicking here.
