The July 16 edition of Benton County Enterprise published the first notice of a tax lien sale. Missouri state law mandates such sales are held at 10 a.m. on the fourth Monday in August. This year on August 24, 2015 the sale will begin at the County Courthouse and continue from day to day until all properties have been offered for sale.
Unpaid property taxes accrue penalty interest
Property taxes are due annually on or before December 31. Taxes become delinquent the next day, January 1, and interest penalties apply from that date until paid. Interest accrues at the rate of 2 percent per month or partial month, up to a maximum of 18 percent per year.
County Collector duties
The County Collector must act to collect delinquent property taxes within three years after they become delinquent, and publish a list of delinquent real properties for three consecutive weeks, the last of which must be at least fifteen days prior to the sale.
Before publishing the list of delinquent real properties, the Collector sends notice by first-class mail to the owners of record, and a second notice by certified mail for properties assessed at more than $1,000.
Participants in tax lien sales
The County Collector, individual property owners, and buyers of tax liens are the parties involved in the process of selling tax liens on delinquent properties that have not been redeemed by the date of the sale.
Benefits of tax lien sales
According to Tax Lien University, every year between $7B and $10B in tax liens are sold nationwide. In Benton County, Mo. the stakes are much lower. Properties listed for first, second and third sales represent less than $135,000 in potential sales before taking into consideration the properties that some owners may be able to redeem before the sale date.
Unpaid property taxes deprive local government of revenue required to fund essential public services like schools, police and emergency response. Tax lien sales compensate for the lost revenue and provide direct and indirect benefits to many.
- Tax lien sales generate replacement revenue that benefits the local government as well as all taxpayers in the community.
- Delinquent property owners retain rights of redemption for extended periods which gives them more time to settle outstanding tax liabilities and retain property ownership.
- If owners redeem properties, tax lien buyers get reimbursed for amounts paid for the liens including costs and penalties, plus interest accrued each month taxes were unpaid.
- Lien buyers’ investments are secured by the properties; if properties are not redeemed the buyer receives a deed of ownership.
Eligible tax lien buyers
Buyers of Missouri tax liens must meet certain requirements:
- Missouri residents who attend the sale in person or by an authorized agent; and
- Sign an affidavit declaring they are not delinquent on any other property taxes; or
- If a non-resident, appoint a county citizen as their agent; agree to accept the jurisdiction of the county court to resolve any issues that may arise regarding the sale/s; and
- The agent must certify to non-delinquency on any property taxes; and
- Any purchase by an agent on behalf of a non-resident buyer must be in the resident agent’s name who will later convey the tax lien certificate to the non-resident purchaser.
Buyer due diligence necessary to avoid pitfalls
Despite promising investment opportunities available by purchase of tax liens, there are risks that every potential buyer should acknowledge and take steps to avoid.
Naomi Smith, writing on Zacks.com, and Steven E. Waters of Tax Lien University summarize some of the risks:
- The property may have environmental or structural problems, code violations or be located in undesirable neighborhoods;
- The property may be worth less than costs to acquire it, or worthless altogether;
- There may be undisclosed federal liens or encumbrances buyer would have to pay if property owner does not redeem it within the time allowed;
- Property owner/s may redeem the property, and many do, before buyer can receive reasonable return on investment;
- Tax delinquent properties included in bankruptcy proceedings cannot be sold without court approval.
Experts recommend potential buyers visit and evaluate properties that interest them to take into account the risk factors above, among others. Further, they recommend waiting until a time closer to the sale date so that any properties that owners have redeemed during the public notice period can be removed from consideration.
First sale
A quick count shows 343 properties with taxes delinquent for years 2013 and 2014 that will be offered for the first time on August 24, if owners do not redeem them beforehand. Among them:
- For less than $50 each, (85) properties could be redeemed or sold;
- For less than $100 each, (150) properties could be redeemed or sold;
- For less than $500 each, (285) properties could be redeemed or sold;
- For less than $1,000 each, (320) properties could be redeemed or sold;
- Remaining (23) properties cost between $1,042 and $5,769 each to redeem or buy.
Second sale
A similar count shows 85 properties with taxes delinquent for years 2012, 2013 and 2014 that will be offered for sale for the second time on August 24, if owners do not redeem them beforehand. Among them:
- For less than $50 each, (38) properties could be redeemed or sold;
- For less than $100 each, (61) properties could be redeemed or sold;
- For less than $500 each, (84) properties could be redeemed or sold;
- One (1) remaining property would cost $3,436 to redeem or buy.
Third sale, and beyond
As expected there are fewer properties listed for sale for the third time on August 24, if owners do not redeem them beforehand.
- Two (2) properties have tax delinquencies for years 2011, 2012, 2013 and 2014
- One (1) could be redeemed or sold for $326
- One (1) could be redeemed or sold for $3,802
- Two (2) properties have tax delinquencies for years 2010, 2011, 2012, 2013 and 2014
- One (1) could be redeemed or sold for $318
- One (1) could be redeemed or sold for $4,407.
After every sale
- Immediately after the sale, the successful bidder – one who offers the highest price for the property sufficient to cover the delinquent taxes, accrued penalty interest and the County collection fee ($20.00), must pay the full amount due.
- If payment is not made, the property is placed for resale. If no bidders at that time, the original buyer must pay a 25 percent penalty that goes to the school fund. The prosecuting attorney is required to collect the penalty.
- If properties are sold for amounts greater than the total due for taxes, penalties and county collection fees, the surplus amount is held in the county treasury for three years during which time the original owner or legal representative must claim it. Three years after the date of sale, unclaimed surplus funds go to the school fund.
After a sale – first and second offerings
- County Collector issues a certificate of purchase:
- Establishes the buyer’s lien on the property (not ownership)
- Property description
- Details of sale
- Interest rate not to exceed 10 percent
- Date deed will be available to buyer if owner does not redeem.
- Buyer pays for and records certificate of purchase.
- Buyer must obtain official title search not more than 120 days before applying for deed, for example, this year’s sale:
- First or second sale of property on August 24, 2015
- Property deed issued to buyer if owner does not redeem before August 23, 2016
- Title search conducted and effective as of April 27, 2016 or after
- At least 90 days prior to eligibility for deed, buyer must notify owner and “interested parties” of right to redeem, for example, this year’s sale:
- First or second sale on August 24, 2015
- Buyer’s title search effective on or after April 27, 2016 reveals “interested parties”
- No later than May 27, 2016, buyer sends notice to parties above.
- Notice must be by first-class and certified mail to the last known address of each person required to be notified; if both are returned unclaimed, buyer must attempt a third notice by posting it on the property or presenting it to an occupant.
- Property owner retains right of redemption any time before the Collector issues a deed to the tax lien buyer, but must pay all costs incurred by the lien holder including for the notices, the title search, postage, recording fees and the release.
After a sale – third offering
- Buyer must obtain official title search not more than 120 days before applying for deed, for example,this year’s sale:
- Third sale on August 24, 2015
- Buyer’s title search to be effective on or after September 8, 2015
- At least 90 days prior to eligibility for deed, buyer must notify owner and “interested parties” of right to redeem, for example, this year’s sale:
- Third sale on August 24, 2015
- No later than October 8, 2015, buyer sends notice of right to redeem to owner and interested parties
- Notice must be by first-class and certified mail to the last known address of each person required to be notified; if both are returned unclaimed, buyer must attempt a third notice by posting it on the property or presenting it to an occupant.
- Property owner retains right of redemption any time before the Collector issues a deed to the tax lien buyer, but must pay all costs incurred by the lien holder including for the notices, the title search, postage, recording fees and the release.
After owner’s redemption period expires
If an owner has not redeemed the property after it was sold at first or second offerings by paying all amounts due as required, one year after the date of sale (that is, August 23, 2016), the buyer can apply for a collector’s deed to the property and take possession by filing an affidavit:
- That the 90 days’ notice requirements have been met, with the date every notice was sent.*
- Attaching a copy of the valid title search
- Attaching copies of the following mailings:
- Notice of right to redeem sent by first class mail;
- Notice of right to redeem sent by certified mail notice;
- Addressed envelopes for all notices as they appeared immediately before mailing;
- Certified mail receipt as it appeared upon its return; and
- Any returned regular mailed envelopes.
If property offered at a third sale has not been redeemed by the owner within the redemption period, the buyer can apply for a collector’s deed and take possession not more than 135 days from the date of sale. That is, January 7, 2016, based on a sale on August 24, 2015, by filing an affidavit in the same manner as above.
* Buyer’s failure to meet notice requirements results in loss of all rights and interest in the property.
Collector’s Deed
After all requirements above are met, the buyer presents a certificate of purchase to the County Collector who issues the deed.
Disclaimer: The article serves as an unofficial primer on Missouri tax lien sale procedures and should not be relied on as the most accurate, complete or legal authority on the subject. Readers should refer below to Chapter 140 of the Tax Sale Procedure Manual published by the State Tax Commission of Missouri, as well as consult with local attorneys and/or. government officials for expert information and advice.
Enterprise Extra 