In early March the city of New Orleans listed 1700 tax-adjudicated properties online to be auctioned off in July. With a deposit of $650.00 and a minimum bit of $3000.00 you could be well on your way to owning land. Aside from new landowners, New Orleans will greatly benefit if the auction is successful. The New Orleans property auction would provide some of the city’s most unsightly blighted properties and neighborhoods with a well needed investment.
Understanding tax-adjudicated properties
When a property owner does not pay his taxes, the tax debt is sold at auction. If no one buys the tax debt, the property is said to be “adjudicated to the city,” essentially handed over to the government.
Any property can become tax adjudicated, but properties whose taxes go unsold at a tax sale are usually abandoned and are more frequent in low-income areas of the city. About 90 percent of the properties in the auction are vacant land, according to the city.
How does the auction work?
Once a deposit is made it will trigger a 90-day “research and notification” period. This 90 day “research and notification” period is required by law to attempt to find the original owners and notify them that their properties are to be sold
At the end of the 90-day period, provided the original owner doesn’t redeem the property and the auctioneer can secure title insurance for it, the city will schedule phase two, the auction.
You will be notified once the auction is going to start, assuming you made your account and hooked it up to your bank, and it will remain open for 4 hours.
The winning bidder is required to pay closing cost, estimated at around $3000 and must have title insurance. The city doesn’t allow properties to go to auction without a guarantee from auctioneers that it has secured title insurance but real-estate experts say buyers should be careful when buying tax-adjudicated property, even if they have insurance.
What can you expect if you win the auction?
Payment is due within 24 hours of the auction’s close. The payment will be held in escrow until closing, which should occur no later than three weeks after the auction. If you do win the auction, you can choose to do what you want with the property, just as if you bought the property through a traditional transaction. It is important to note that you are responsible for maintaining the property and paying the taxes (this is of course how this property came to auction in the first place).
Blight and weed fines can stack up quickly. A month’s worth of fines often total about $30,000 and remain attached to the property as a lien until you pay them off.
Do not buy a property unless you can commit to maintaining it until you move in, develop it or resell it.
And according to the city you will get a clear title and insurance. While you assume you have gotten to this point because the city has crossed all of the T’s and dotted all I’s, that’s where the possible problems could start.
What issues can you anticipate and look out for?
Only the property’s purchase price is covered by insurance. The city said that First American will offer expanded title insurance to cover improvements if buyers decides to take out a mortgage and build a house.
The title insurance is also transferable, according to the city, so if you win the property and decide to sell, the new owner would also have guaranteed title insurance.
The city also said that once you win a property and later decide to sell the title insurance will be transferable to the new owner. This is supposedly guaranteed.
Real-estate experts say that even with insurance buyers should be careful when buying tax-adjudicated properties. Making a claim to a title insurer, like any other insurance company, can be a headache and yield uncertain results. Buyers should read the fine print before signing a deal with one of these properties. This warning stems from the past tax-delinquent properties dealings and their shady titles and accompanying legal battles.
The title trouble comes from a legal requirement that owners of tax-delinquent property be notified that their land is about to be sold for taxes so they have a chance to pay up before the auction. The city is required to make those notifications, but its past record keeping has proven so inferior that it often couldn’t prove the required actions ever happened. Because of this sub par record keeping, original owners learned that simply saying they didn’t receive the letter gets them back in the game. They still have to come up with the back taxes but it does cause a major ripple in the sell.
This issue is why title-insurance underwriters now usually refuse to issue policies on tax-sale properties, with the exception of First American. This puts them on the chopping block for any challenges, not the people who buy properties in the auction.
Even with First American at risk, buyers should still walk into the auction with eyes wide open to the potential hiccups. As with any kind of insurance, the policyholder will be obligated to file a claim if things go bad, and when things go bad the interest of the insurance company and the policyholder are rarely aligned.