Texas Question
What happens if a property is sold at auction for a premium (i.e. more than the minimum bid, which is the delinquent tax)? Is the owner required to pay this additional amount upon redemption? Also, is the interest penalty calculated on the full amount paid, including premium, or just on the minimum bid?
I answered this before so here it is again:
You bid up on the deed. Bidding starts at the amount of back taxes, penalties and admin. costs.
The price paid at auction (even if the property is bid up) will be included in the computation of the interest amount paid at redemption.
In summary, Texas uses a bid up system. It is is a tax deed state but it has a statutory redemption period of 6 months for non-homesteaded, non-agricultural use, and properties without a severed mineral interest.
If the property is homesteaded, is designeded as agricultural use, or has a severed mineral interest at the time the tax suit was FILED then the redemption period is 2 years.
The lack of a homestead exemption does not gaurantee the property was not used as a homestead. Common investor mistake - Nichols v. Lincoln Trust Co. 8 S.W. 3d 346 (Tex. App - Amarillo 1999, no pet). Learn the details in Texas.
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Ok, thanks. You answered the second part of my question, but what about the first part?
Example...
Let's say the minimum bid is $5,000 but ends up selling for $6,000. Let's say the owner want to reedeem in the 1st year. How much would he need to pay?
1) $6,500 ($5,000 + ($6,000 * 25%))
0r
2) $7,500 ($6,000 + ($6,000 * 25%)
Thanks for your help.
Here is the answer I posted in the earlier post:
The price paid at auction (even if the property is bid up) will be included in the computation of the interest amount paid at redemption.
This means that if the property is bid up to $6000 then interest will be computed on the $6000. As a result even though the opening bid was $5000 the amount paid at redemption would be $6000 * 25% or $7500.
Always go back to the statutes when you have a simple question like this. There are some issues in Texas such as homestead interests and surviving liens that do require more instruction.
Here is the statute Section 34.21: ...by paying the purchase the amount the purchaser bid for the property, the amount of the deed recording fee, and the amount paid by the purchaser as taxes, penalties, interest and costs on the property, plus a redemption premuim of 25 percent of the aggregate total if the property is redeemed during the first year of the redemption period or 50 percent of the aggregate total if the property is redeemed during the second year of the redemption period.
I could talk to you about the proposed legislative changes during the 1997 session and the different house bills that were introduced to modify these provisions...however they are still the law in Texas. Also based on the amendments during the 2003 legislative session it appears that these will continue to be the law for a while.
Best of Luck!
_________________
Warmest Regards,
Darius M. Barazandeh, Attorney at Law / M.B.A.
NOTE: Any material found on this discussion forum or email with Mr. Barazandeh is for educational purposes only and does not create an attorney client relationship.[ Edited by DariusBarazandeh on Date 06/09/2004 ]
Ok, so your saying the owner must pay the additional $1,000 excess over the mimimum bid paid upon redemption for a total of $7,500.
Sound great for the investor and very bad for the owner. Doesn't matter how much over the minimum bid I pay, the owner will make me whole upon redemption.
Not that I am doubting what you are saying but it seems a little unjust for the owner. Seems like upon redemption he should only be on the hook for the minimum bid (which is made up of the deliquent tax, court costs, etc.) plus the penalty, and not any excess amount over the min. bid I decided to pay in order to win the sale at auction.
The statute language you posted states that the redemption amount, among other things, is the amount bid by the purchaser. I guess this would be the winning bid regardless of how high it was.
Yes I am glad you understand.
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The best thing you can do is go read the statute. If you are still unsure then go talk to some investors, purchase a course, and talk to the county tax office. Heck you can give me a call if you like.
Thats the law here in Texas. Yes it can be unjust for the delinquent property owner but recall that it takes quite a bit of delinquency to have your property sold at a tax deed auction. Unlike tax liens sales most tax deeds have been delinquent for more than 2 to 3 years. Most counties also have payment plans and make numerous attempts to recieve payment from the delinquent taxpayer.
Some states do not use a bid premium in the interest computation, but Texas does. I think its good for the state and good for investors.
Best of Luck
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