A tax sale occurs when a municipality has a property with property tax owing. To recoup these unpaid taxes, the property is sold by public tender or at auction. Investors who purchase tax-delinquent properties end up with a steal, as they’re often sold for a small percentage of their assessed value.
These tax sales are held in nearly every municipality in Canada every year. If this is your first tax sale or you are thinking about coming to a tax sale, here is how to prepare.
Outline Your Purchase Strategy
Know why you want to go to a tax sale. Whether it’s purely to have fun and see what you walk away with, whether you have an aggressive investment strategy, or whether you want to be a homeowner at a lower cost, when you have a purchase strategy, you have something to judge tax sale home listings by.
Carefully Evaluate Listings
Weeks before the tax sales, listings are posted publicly and directly on the municipality’s website and third-party sites. Read through each listing and make notes about each property. Decide whether the listing is a ‘yes’ or ‘no’ to investigate.
Note the Date, Time, and Location
Every tax sale listing should specify the auction or public tender’s date, time, location, or deadline. If it’s a public tender, bids are submitted by mail, and there is a deadline for receiving them. When a tax sale is followed by auction, you must attend.
Inspect the House from the Public Road
While you do not have permission to request a home inspection before the tax sale, you can inspect a house from a public road. Look carefully at the property for warning signs of damage or repairs needed.
Run a Title Search to Check for Property Claims
Crown interests or other claims to the property in question may turn a basic tax sale into a complex situation. If you’re dealing with a property you are interested in, a title search will tell you everything you need to know about whether there could be interference.
Save Time and Bid Your Best Amount
Tax sale homes rarely sell for the minimum bid amount. The sale price is often raised due to competition for the property. With this in mind, when deciding how much to bid, please consider that it will likely be significantly more than what the municipality has set as a budget.
Restrain Your Bid and Don’t Overpay
Is another party driving up the bid and above where you’re comfortable bidding? Let them know. Don’t overpay. It puts you at risk if the property ends up requiring repairs and you’re saddled with much higher costs than you want.
Be Prepared to Walk Away With Nothing
Most people who attend an auction or bid on a tax sale house walk away with nothing. Be prepared to walk away if costs creep up too high and exceed your budget. This is the smartest thing to do and, most importantly, it will save you money for your next tax sale home.
Come Ready To Close The Tax Sale
The successful bidder must fulfill the auction or tender conditions almost immediately. Come prepared with cash, bank draft, or certified cheque.
Securing Tax Sale Money Requires Planning
There is no mortgage or financing for a tax sale. An investor shows up with money in hand. To secure your financing, consider what you have available in savings, personal loans, credit cards, what you can sell, and other ways to build up your bank account.
Understand That There Is No Warranty
A municipality does not warranty a property’s condition or suitability. It may be completely rotten inside, and you cannot know beforehand. You cannot return to the property and recover your investment. It would help if you researched what you’re buying well.
Grace Period for the Prior Homeowner
Homeowners typically have a grace period, sometimes extended past a tax sale auction. This is how they can pay the arrears and recover full ownership of their property. If this occurs and you have been declared the winning bidder, your bid is returned to you plus interest.
Vacant Possession Is The Bidder’s Responsibility
Another thing to prepare for is the winning bidder’s responsibility to obtain vacant possession of the property. You should contact a real estate lawyer to pursue legal avenues toward getting your new property vacant.
