October 2003 and 2004 Changes to Texas Tax Sale Laws!

The 2003 Regular Session of the 78th Texas Legislature passed some changes to tax law as it relates to tax foreclosure sales. These changes were constitutional amendments and can now be found in the Texas Constitution. The majority of these changes will have little effect on your investment strategy and your success. This is especially true if you follow the techniques provided in my course, Texas Houses for Pennies.

In order to be sure you understand these changes I will detail them in the pages that follow. Keep in mind that many of these changes were designed eliminate any confusion, injustice or inefficiency in the process of administering the sale of tax foreclosed lands in Texas. In each scenario, I will duplicate the exact text of the House Bill and then explain its significance. The changes are discussed below:

House Bill 335
Effective September 1st 2003

A person may not bid on real property at a post-judgment execution sale or tax foreclosure sale without presenting to the sheriff a certificate from the tax office verifying that the person does not owe any delinquent taxes in that county.

A person may not bid at such sales on behalf of another person. Sales conducted in violation of these provisions are void.

Changes to Bidding Rules:

House Bill 335 was passed by Texas voters and became effective on September 1st 2003. The primary reason this amendment was to make ensure that bidders at tax foreclosure sale were not delinquent taxpayers themselves in the county where the sale is being held. This makes a great deal of sense when viewed from the vantage point of the county. Obviously, the county has a vested interest in placing the tax foreclosed parcel back on the active tax role. If the purchaser at tax sale also presents a risk of non-payment then the cycle of delinquency will repeat itself. You should comply with the amendment and obtain a certificate from the tax assessor located in the county where the sale will occur. This certificate will indicate that you are not currently delinquent on your property taxes. It is not a complex procedure but it nevertheless must be completed before the auction.

You may be wondering exactly how much time must allow for the completion of this form. I can tell you from experience that it is really no big deal and should be completed at least 5 days before the auction date (if you are buying at a regular sale) or your anticipated date of purchase (if you are buying tax deeds held by the county). The form will require you to list all properties that you own which lie in that county. A clerk at the tax office will verify that you do not owe delinquent property taxes, school taxes or city taxes on property you own in the county where the sale shall occur. The fee is $10, and the qualified bidder shall receive three copies of the statement. This statement is good for 90 days from the date of issuance and must be presented at the tax sale auction.

The second provision of this House Bill is also relevant to the investor. The new rule states that one cannot bid via proxy (i.e., on behalf of another). The practical significance of this amendment is that the sheriff can only make the deed out to the party who is bidding at the sale. Therefore if ‘John Smith’ is the bidder then the sheriff’s deed must be made out to the order of ‘John Smith’. It is likely that this was done to reduce the risk of a delinquent taxpayer purchasing tax defaulted property since the presence of ‘proxy’ bidders (those bidding on behalf on another) can create some confusion and difficulty when trying to verify who the final owner of the parcel will be.

Once question that I am repeatedly presented with is the effect of this amendment on those who are bidding on behalf of their own company. For example:

Example 1: Albert is the President of his own corporation, ABC Corp. Albert attends a tax sale in Texas and is not sure if he can bid on a parcel. Albert’s name will not be on the sheriff’s deed but the name of his company, ABC Corp. will be on the deed. Can Albert still bid on behalf of his company?

Yes, Albert can bid on behalf of his company since he is an agent of his company in his role as President. In addition, his company, ABC Corp. is also not ‘another person’ according the language of the Bill. In summary remember that the law does not apply to corporations, partnerships, limited liability companies, charities, or agencies. These entities can have another bid on their behalf. If you have followed my suggestions then you should already have a business entity which is used to purchase your tax deeds. As a result the net effect of this rule is zero. What if you don’t have a company formed yet? In that case you can still bid and buy tax deeds but you must be present at the auction and you must do the bidding yourself.

An Additional Suggestion

Another area to consider is whether or not Albert should obtain two certificates of non-delinquency from the county: one for himself and once for his company, ABC Corp. Although this appears to take the scope of the Bill a bit far I recommend that you perform this step. Since this is a new law one cannot be sure how it will be interpreted by those who administer the process (i.e., the sheriff, the constable, the recorder’s office, etc.). I think you should obtain a certificate which indicates that you and your business entity are not delinquent regarding any property taxes in the county where the auction is held. Regardless of whether or not your entity owns any property in that county you should take this additional step.

Redemption Period for Mineral Interests

House Bill 1125
Effective September 1st 2003

The tax foreclosure redemption period on mineral interests is extended from six months to two years

House Bill 1125 was passed by Texas voters and became effective on September 1st 2003. This amendment seems like it would be quite significant for tax sale investors since it effectively creates another redemption time period for properties with a ‘severed’ mineral interest (don’t worry I will explain what I mean by ‘severed’). In reality it does not really have much impact for most investors.

In order to understand this Amendment we must first acquire an accurate picture of the ‘dual estates’ system which is effect in Texas. In Texas, each parcel of property located in the state is really made up of two estates which can each be owned by separate individuals or entities. More specifically there is a ‘surface estate’ and a ‘mineral estate’. The surface estate is the land that you see when you examine a property and it generally begins at the surface and proceeds upward to the sky. On the other hand the mineral estate begins below the surface and extends (at least in theory) to the core of the earth. These two estates, the surface estate and the mineral estate, are considered one unless they have been separated or severed by a conveyance or grant to another party. That is to say that unless these estates have been split, the general rule is that if you purchase the surface you also obtain all rights to minerals lying under the surface as well.

However if the mineral interest has been granted or conveyed to another through a mineral deed, for example, then the estates are considered severed. If the estates are severed and the surface estate is sold at a tax sale then the mineral interest owner will have 2 years to redeem their interest regardless of what the redemption time period is for the surface estate. Let’s look at an example:


Example 1: John purchases a tax sale property located in a rural area in Texas. The property has no homestead exemption filed on behalf of the owner, however the mineral interest was sold to ABC Minerals, Inc. John’s tax sale property will actually have two redemption periods under the new amendment. The ‘surface estate’ will have a redemption time period of 6 months (since no homestead or agricultural use exemption was filed). The ‘mineral estate’ held by ABC Minerals will have a 2 year redemption period.

As you can see this amendment has created an extended period for the owner of the mineral interest to redeem the parcel. Confused? Well don’t worry this really will not impact most of you who follow my recommendations. In my course, Texas Houses for Pennies, I make sure that you eliminate risk from the equation. I have always advocated focusing on residential properties located in subdivisions. Unless you are focusing on ranch land or large undeveloped parcels of land it is doubtful that this will affect your strategy at all since city restrictions prevent exploitation and use of subsurface minerals. If you are in a predominantly rural area and the parcel has a structure that is located at the far end of town and it appears questionable, then you may wish to perform a quick search of the title index. You should simply access the grantor/grantee index (as discussed in Lien Research Guide found in Texas Houses for Pennies.). While you are looking at the records check for any sales of the mineral estate. The conveyance will be fairly easy to find if it exists and will show up on the records index as a regular deed, however the deed instrument itself will say that it is ‘a conveyance of the mineral estate’ or that it is a ‘Mineral Deed’.

In summary these changes really have little effect on tax sale opportunities in Texas. The opportunities are still very plentiful, especially in smaller to mid-size counties. In fact, just before I started writing this article I received a call from a student in Arizona who traveled to a tax sale in Travis County, Texas. The gentleman purchased a single family home near a lake resort area for $23,000. The property was recently appraised in 2002 for $235,000. While the property needed some minor work, the investor stood to make a substantial profit on the deal. I was also contacted by another investor from San Antonio who informed me that he was making a good deal of money purchasing subdivision lots in rapidly growing subdivisions. He explained to me that he purchased 5 lots at a Texas ‘resale’ auction for under $400. These same lots were then sold to another investor for $1,600 each! This illustrates that there are still some good deals in larger counties, but imagine the opportunities in many of the smaller counties where month after month properties fail to sell for lack of bidders. Use common sense, learn how to research records and contact me with your questions! If you need help researching properties you can visit my website to access my free Texas research center.


Information contained within this article was not intended to be, nor should it be taken by the reader as legal, financial or tax advice. The above article was written for educational purposes only.