January 9, 2017

Purchasing a Property at a Tax Sale

Allen A. Campbell Authored by: Allen A. Campbell Posted in: Real Estate

Purchasing a property at a tax sale can potentially provide an excellent deal on a valuable property.  However, it is not without its pitfalls.

There are typically two types of properties available at a sale for arrears of taxes:

A non-redeemable property means that once you purchase it at the tax sale, you will be provided with a Certificate of Sale for taxes, and shortly thereafter with a Tax Deed to transfer title to your name.  The previous owner has no “as of right” process to get the property back.   Where a property is redeemable, you only receive a Certificate of Sale for taxes in the near term after the sale.  The tax-assessed owner typically has six months to “redeem” the property.  If he pays up the taxes and interest/charges, the property will be redeemed and the Certificate of Sale will be cancelled.  The owner keeps the property and you, as tax sale purchaser, will get your purchase funds back.

In either scenario, the purchase will be completed on an “as is, where is” basis.  This means you take the property in whatever physical condition it is in, and take title in whatever state title is in. 

There are risks associated with both scenarios.  You normally do not have any ability to physically inspect the property.  Once you own the property, you may find out there are environmental or other hazards on the lands, which may now become your problem and liability.  With respect to a property that contains buildings, you will likely not know at the time of purchase the actual condition of the building.  There could be significant damage and problems with the building, including mould, water damage and structural problems that could affect the value of the property.  Once you buy the property at tax sale, you generally have no recourse for these issues.

In addition to the physical condition of the property, there is some risk in regards to title issues.  Generally, the tax deed will convey the property free and clear of other charges and liens.  However, it does not fix gaps in title that might exist.  This would be less of a concern if the title to the property has been converted to the Land Registration System.  Regardless, we would recommend a title search be obtained prior to bidding on tax sale properties.   There could also be potential issues with the description, boundaries of the property (including encroachments).   It should be noted, however,  that some title issues can be resolved once six years have passed from the date of the tax deed.

In either scenario, purchasers should keep in mind that the seller, being the Municipality,  is not warranting title and is not providing a property condition disclosure statement.  The purchase, as noted above,  is “as-is” in either case.  In most cases, once the purchase is complete, any issues with the property are the responsibility of the purchaser.  Regardless, with the proper due diligence and  realistic expectations, purchasing a foreclosed property can be a good investment in the right circumstances.

On sale, the full price (or a deposit equal to the taxes, interest and expenses) for which the land was sold,  is due immediately and may only be paid by cash, certified cheque, money order, irrevocable letter of credit or lawyer’s trust cheque.  Where the deposit is paid on sale, the balance of the purchase price must be paid within three business days of the sale.

In addition to the title review due diligence, you can usually also retain a lawyer to attend the sale and bid on the property on your behalf.   We recommend at least a consultation with a  property lawyer prior to attending a tax sale and bidding on a property.

For more information on purchasing a property at a tax sale contact Allen Campbell. For other Property related inquiries please contact a member of our Real Estate team. 

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