Purchasing Property at a Tax Sale in Louisiana

July 8, 2016 Business Law, Property Law

Louisiana property owners must pay property taxes. When they don’t, the parish tax collector sells the property at a tax sale. Tax sales can be a great opportunity for individuals to invest in some property that they could ultimately own for pennies on the dollar, but the procedure is long, and you should seek legal and financial advice before purchasing property at a tax sale.

The law is designed to ensure that the parish receives its tax revenue, but it also provides safety procedures so property owners can’t easily lose their property for an overdue bill of $300.

The Process

Each step is explained in more detail below, but generally speaking, tax sales occur in 4 steps:

  1. The parish tax collector (usually the sheriff) publishes the property for sale;
  2. The tax collector sells the property for a flat fee amount at a public “auction”;
  3. For three years, the original owner can redeem the property by paying the purchaser the amount paid, a penalty of 5%, 1% interest per month;
  4. After three years, the purchaser can file a lawsuit to “quiet the title”.

The Tax Sale

In St. Tammany, the sheriff publishes its tax sale properties in the Advocate and online. The sale usually takes place at the courthouse in Covington, and purchasers are required to register before the auction.

The sheriff then sells each property for a flat fee consisting of the amount of taxes due on the property plus interest and costs for the advertisement and sale of the property. Usually, the sale price is significantly less value of the property.

  • What do Tax Sales Purchasers Get?

When you buy property at a tax sale you obtain a “tax deed,” which is a little different than a standard deed. Normally, when you buy a house or piece of property, you pay the owner, and then you obtain full ownership in the property, including the right to possess and use the property. At a tax sale, you don’t fully own the property immediately; you purchase a “tax deed” from the tax collector and you have something called “tax sale title.”

In short, purchasers obtain a limited title that is subject to redemption.

After a tax sale, the owner of the property can redeem the property for a period of three years after the tax collector files a tax sale certificate in the parish’s public records. To redeem the property, the owner has to pay the purchaser:

  1. the price paid at the tax sale;
  2. all taxes paid on the property since the tax sale;
  3. a penalty of 5% penalty;
  4. 1% interest per month

The owner must also pay the tax collector for the transaction costs related to the redemption.

  • Possession

The tax sale title does not automatically give the purchaser the right to use or possess the property. As a rule, a tax purchaser is entitled to immediate possession of the property, the purchaser can exercise possession of the property without any formalities only if he can do so without any resistance. For example, if you purchase a vacant lot or building, then you can immediately take possession, cut the grass, etc. On the other hand, if you purchase a home that is occupied, a court will need to be involved if you want to take possession and evict the occupants.

  • Purchasers Obligations

The tax sale purchaser is required to maintain the property and pay the requisite tax obligations. In some instances, the property may be subject to ordinances or other obligations relating to upkeep and maintenance. If so, the owner would be required to cut the grass, maintain the structure, etc.

  • Quieting title.

If the redemptive period expires, the purchaser must file a lawsuit called a “quieting title action.” This can be complicated, but in simple terms, the purchaser sues the former owners. The owners defend the lawsuit by attempting to annul the tax sale. If they don’t, the property will officially belong to the purchaser.

Summary

 Purchasing tax sale property can be very lucrative, but it can also be a headache and expensive if not done properly with the correct legal and financial guidance. If you are seeking to purchase tax sale property, you should consider starting an LLC to purchase the property to limit any liability you face during the redemption period.

Chad Danenhower