What are Tax Sales & Why They Make Title Insurance Underwriters Nervous

Taxes |

Most tax sales in Georgia are nonjudicial tax sales. A nonjudicial tax sale occurs after a homeowner has received three notices that their property tax payments are delinquent and that a failure to pay will result in the sale of the property. Additionally, the sheriff must post notice of such sale in the newspaper
of record. After notice and publication, if the homeowner still fails to pay his/her past due taxes, a lien can be placed on the property. The sheriff can then conduct a nonjudicial tax sale to sell the home or foreclose on the lien in a judicial proceeding, after which the new buyer of the home becomes the vested owner and receives a tax deed.

This, however, is not the end of the process. Even after such a sale occurs, the foreclosed owner still has a twelve month Right of Redemption, which allows he or she to reclaim the property. To effectively exercise this right of redemption, the foreclosed owner must pay the following:

  • The purchase price for the home paid after the foreclosure
  • A 20% premium for the first year or that portion of the year that elapsed between the sale date and the date of redemption Taxes that the purchaser paid after the tax sale
  • Any other assessments specified under the statute
  • The sheriff’s costs for serving and publishing notice—but only if they did not redeem until within 30 days after the notice of the redemption deadline was received

Why do tax deeds in the chain of title make title insurance companies nervous? The title insurance companies are waiting to see if any of the previous owners and/or lienholders, depending on what type of tax sale it was, come forward to challenge the validity of the sale due to a possible defect in the service prior to issuing title insurance. In other words, someone with a potential claim to the property that was not properly notified of the sale according to the law could seek to have the sale set aside. This will challenge the right to ownership of the property and this right will have to be defended to prove ownership.

In almost all tax sale situations, the new buyer will need to file a Quiet Title Action lawsuit which can take six to nine months to complete and cost several thousand dollars. This action must be taken to prevent challenges to the validity of the deed and underwriting issues stemming from the tax-sale purchase. In 99% of instances, title insurance underwriters will refuse to insure the title of the property with a tax sale in the chain of title unless a Quiet Title action has been effectively filed. If you have any specific questions about tax sales or anything you’ve read above, please email info@mmhfirm.com.

Written by Dal Burton, Jr., Attorney at McManamy McLeod Heller, Intown Office.

*For informational purposes only. Not to be relied upon as legal advice. Nothing in this blog should be construed as creating an attorney-client relationship. MMH is not responsible for, does not endorse or accept liability for any externally linked site or its content. MMH does not give any representation regarding the safety, reliability or accuracy of the content or materials contained on any external website.