When considering purchasing a Tax Deed in Georgia, real estate investors are working “blind” in some respects.  Because the investor doesn’t know which properties will still be up for auction on the actual auction day, and because the list fluctuates from month to month, it’s too expensive and time consuming to do a full title search on each potential property prior to the sale.  At best, most investors get a look at the tax map, a google map, maybe a “prior sales” search, and if they’re really diligent, a drive-by of their top 5-10 properties.

With that limited information, most investors are bidding on properties without knowing anything about the actual condition of the property, whether it’s on sewer or septic, whether the prior owner is still alive, whether the property can be subdivided, etc….

With tax deeds, though, many of those risks are tempered by the fact that, if you do wind up with the property, you would own it free and clear of most prior problems.

The issue of Excessive Levy, though, can rear its head even after you have barred, or foreclosed, the right of redemption arising under the tax deed.  (If you don’t know about the right of redemption, take a look at a couple other tax deed posts here, and here, and here, and here).

Imagine a single 5-acre tract, owned by the same man for many years.  After his death, and the subsequent disorganized handling of his estate, the property taxes go unpaid.  All this time, though, property values in the area have been creeping up.  The tax arrearage is a small amount, maybe $1,000.  You think this is a great deal, because single acre parcels in this area are going for $7,500 (which means this parcel could be worth over $35k).  You then attend the tax auction.  Other investors apparently also thought this property was a good deal, and the bidding gets competitive.  Finally you win the auction with your final bid of $18,500.  You wait the full year, find all interested parties, heirs, etc… bar the right of redemption, and now you’re ready to start marketing the property for sale.  Where’s the problem?

The problem is that you don’t know whether the sheriff or tax commissioner evaluated whether they could’ve sold a smaller piece of the property to settle the tax debt.  If that 5-acre parcel can be divided into single acre tracts (or even half acre tracts), and then one of those smaller tracts sold to cover the tax debt, then the Sheriff has an obligation to have the prior owner designate which portion of the land to sell.  If they fail to do so, and if the prior owner raises this claim, then the entire tax sale may be set aside as invalid.

So, what’s the takeaway from all this?

  1. Realistically, unless you really know the local market, you won’t be able to protect against this risk.  You probably won’t know whether a given tract is able to be divided (obviously this is a bigger risk when dealing with larger tracts), and you certainly won’t know what conversations the tax commissioner and Sheriff had with anyone prior to the sale.
  2. The risk is real, but it’s not that bad.  It’s fairly rare that anyone raises this issue, and even if the tax sale gets set aside as invalid, the tax commissioner will refund your bid, so you won’t be out of pocket any money.  The problem really is that you won’t be getting any refund until this process plays out through the Court process, which could be a couple of years.  That means your money will be tied up during that time, not earning you any return.  Alternatively, if, after the Court process is concluded, the sale is not invalidated, you can continue forward with whatever your exit strategy was to begin with (though you’ll likely be a year or two behind schedule at that point).
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