Beware of Title Derived Through Tax Sales
Fall is here and so are the scares and excitement of Halloween. In the title world, we have our own set of spooky stories or terrors that keep us up at night. Title derived through an ad valorem or real property tax sale is one such horror. When real property is sold at a tax sale for unpaid or delinquent property taxes, there are several facts that cause the title to the property to be clouded or have marketability concerns depending on state and federal law.
Tax Sale Redemption Periods
Depending on state law, there may be multiple redemption periods that allow the prior owner to reclaim the property despite the fact that a tax deed or tax land patent has been issued to the tax sale or certificate purchaser. These periods could stretch to several years and redemption rights may be assignable depending on your state. One county or even municipality may issue a tax deed while another issues a tax lien certificate. Depending on the document and interest issued, there may be different statutory requirements for asserting rights under each. These requirements must be strictly followed in order to assert an interest against the property free of challenge.
What Are Tax Deeds?
In general, tax deeds are quit claim deeds subject to the tax sale being conducted in strict compliance with the statutory requirements authorizing a public sale of private property. While states differ on their approach to enforcement of real property taxes through foreclosure sales or proceedings, state courts generally disfavor tax sales without some form of quiet title and confirmation proceeding that reviews the procedure of the sale. An alternative process is the auction of tax lien certificates, wherein the purchaser is only obtaining a right to enforce the tax lien themselves against the property via foreclosure sale. In any event, there are underwriting concerns as it relates to due process and statutory compliance. A quiet title decree may be defective and/or set aside due to the failure to follow statutory or common law judicial procedure or failure to include the appropriate parties easily identified in public records.
Are There Additional Steps After a Tax Deed?
If you have a tax sale resulting in a tax deed, tax land patent or evidence of a tax lien certificate in your chain of title, reach out to your local Stewart underwriting counsel for guidance on possible paths forward. These may include:
- Requiring conveyances and/or releases from interested parties in the chain of title immediately prior to the tax sale or auction
- Requiring curative action through a quiet title and confirmation suit and reviewing the proceedings with your Stewart state underwriting counsel for reliance to insure
- Reliance on the passage of time and/or a statutory or common law principle to provide affirmative coverage with Stewart underwriter approval
Reach out to your local Stewart representative for more information. Visit virtualunderwriter.com for up-to-date information on the latest in underwriting.
If you are a Stewart Trusted Provider™, feel free to contact your Stewart underwriting counsel with questions.
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