Tax sales in Louisiana
Let me start by stating that this is not legal advice.
This blog does not offer legal advice. If you need legal advice, consult with an attorney.
Orleans Parish just held its annual tax sale. This kicked off a lot of chatter concerning tax sales and these discussions often sound disconcerting. A sweet little grandmother loses her house for $78 in taxes or someone starts to believe you can acquire a house or investment property for under $100.
I hope to generally educate about the process and to provide some understanding. If you have specific questions or plan to begin investing in tax sales – consult with an attorney.
What are tax sales? In Louisiana, it is a process or method for a taxing authority to recover delinquent taxes.
A tax sale is the sale of properties that have delinquent ad valorem (real or personal taxes) taxes due. These properties are sold to the public for the amount of delinquent taxes due, plus any accrued interest, costs and other statutory impositions. If a property is sold at tax sale, the property owner has three years to redeem the property from the purchaser by paying the purchaser the purchase price plus a five percent (5%) penalty and one percent (1%) interest per month from the date of the tax sale until the date it is redeemed.
What is the purpose of a tax sale? Governments utilize tax sales to collect unpaid property taxes.
Does this mean that you can lose your house the day of the tax sale auction? Nope. When a house is sold at auction, the property owner has 3 years to “redeem” the tax bill. This redemption is paid directly to the taxing authority. (Usually the Sheriff but in New Orleans it is the City’s Department of Revenue.)
This should dispel the notion of acquiring real estate via tax sale. A tax sale is not an option if you intend to either live in or rent out the tax sale property. There is a redemptive period and it can take up to 3 years before you as a tax sale purchaser move on to the next step.
I often get contacted about using tax sales to acquire property. So here comes the “Debbie Downer” moment:
This is not a good way to buy your first house. TAX SALES are for investors.
a. First, we should realize what they are selling you at this auction. It is a tax sale deed. You do not have the right to enter the property or take possession without the 3 year redemptive period running and taking further legal steps, i.e. Lawsuit to Quiet the Title.
b. I routinely get calls from investors asking if they are going to be able to buy a house for $324.62. No – it does not really work like that. Is it too good to be true? Maybe – Probably – Yes!!
How does this tax sale process work? In Louisiana, our tax sales are handled by auction.
In a normal auction, you are allowed to continue to bid until a person is the highest bidder.
In Louisiana, we like to confuse people. We are a Civil Code state. If you have watched Streetcar Named Desire, you know this already.
“Now we got here in the state of Louisiana what’s known as the Napoleonic code.” – Stanley (Streetcar Named Desire).
Our state constitution does not allow you to pay more money for a particular tax bill, it allows you to bid down to acquire less property. This is the part where many tax sale buyers get a little confused. The winning bidder is the person who is willing to pay the tax bill while acquiring the least amount of ownership. At a tax sale auction, your first option is 100%. The bidder can then offer 99% and then 98% all the way down to 1%.
Let’s go back to my original example – there is a tax bill being auctioned for $324.62. The winning bidder is paying $324.62. The bidding or auctioning process is based on how much of an ownership percentage the bidder is eventually willing to acquire.
Why would someone do this? Is there anything positive?
Tax Sale purchasers buy at the auction because the tax sale purchaser receives a high rate of return. In the first year, you can earn up to 17% on the tax bill amount. Each subsequent year, you can get up to 12% annually or 1% per month. You are not getting that return in a savings account or CD.
The vast majority of investors in tax sale properties are doing so for the high interest rate return.
Is this a good way for a first time home buyer to purchase a home? NO
Do tax sales have many uses? Yes
It’s a great way to earn some interest.
It can also be one of the many tools in the blight remediation tool box.
Special Rule – blighted property owners have only 18 months to redeem a property. The Civil Code allows you to begin remediation prior to quieting the title if the property is blighted. The dollars you can spend are limited but it is the first step in cleaning up something blighted and ensuring that the property is now up to code
WHAT HAPPENS IF THERE IS NO REDEMPTION – HOW DO YOU CLAIM THE TITLE?
If there has been no redemption in the 3 year period, you have to file suit to quiet the title. This means hiring an attorney and beginning a potentially arduous legal proceeding where you bring a lawsuit against all interested parties in the property.
If you are successful with your suit to quiet title, you then have to deal with the next hurdle. It can be very difficult if not nearly impossible to get title insurance on a tax sale title.
Most title companies are reluctant to insure tax titles. If there is no title insurance available, it is unlikely that you will be able to find a lender to loan money on the tax sale property.
These tax sale titles are not a great idea for a first time home buyer.
Tax sale properties can be a way to earn a really nice interest rate.
They can definitely be used in targeted blight remediation efforts.
“Nothing in this blog constitutes legal advice. This is free. Legal advice you have to pay for.” – Scott Greenfield
With all the uncertainty in today’s real estate market,
homebuyers can be certain that purchasing a First American
Title Owner’s Policy is a solid investment that will provide
vital protection against losses should a problem with the
There are two types of title insurance: owner’s title
insurance, called an Owner’s Policy; and lender’s title
insurance, called a Loan Policy. Most lenders require a Loan
Policy when they issue you a loan, and the fee is usually
based on the dollar amount of your loan. It only protects
the lender’s interests in the property. It does not protect the
A recent news article tells of a homebuyer who purchased
a home on a land contract and made monthly payments
of $1500 to the seller until they were able to secure a loan
from a national lender. At the time, the lender required the
buyer to purchase a Loan Policy. Because it is not required
by law to purchase an Owner’s Policy, the homebuyer closed
on the home with only the lender’s interest being protected
by the Loan Policy.
Several years later, the owners of the home were notified
that their house was being foreclosed on and the sale date
was fast approaching. How could this have happened? As it
turns out, there was a prior loan on the home that was never
paid off by the previous owner. Because the current lender
had required a Loan Policy, their interest in the property was
covered. Had the current owners invested in an Owner’s
Policy, they too would have been covered. Unfortunately,
without title insurance, they lost their home. Additionally,
the resulting foreclosure may adversely affect their credit
standing for years to come.
The homebuyers in the story above stated,
“We didn’t buy title insurance. We
were first-time homebuyers. Had we
known about title insurance, [we]
definitely would have gotten it.”
Many homeowners mistakenly think that because a title
search has been done on the property their interest is
One thing is certain…If more homebuyers were aware of the
protection a First American Title Owner’s Policy provides,
they would purchase one, and eliminate the unnecessary risk
of losing their home.
I wanted to pass along some info from the friendly folks at the IRS(always speak with your tax advisor!!):
Sale of Residence – Real Estate Tax Tips
You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time.
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:
Either Owned the home for at least two years (the ownership test) and Lived in the home as your main home for at least two years (the use test).
If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
If you can exclude all of the gain, you do not need to report the sale on your tax return. If you have gain that cannot be excluded, it is taxable.
Rental Deposits in Louisiana
How do I get it my money back?
What happens when the landlord is refusing to return tenant his or her deposit? What can tenant do?
There is a Louisiana statute that is very favorable to tenants with respect to the return of their deposit. A landlord is required to return the deposit in 30 days from the end of the lease unless he has provided the tenant with written reason why he is retaining the deposit.
The tenant should send a letter by certified mail specifically requesting the return of the deposit and stating the date on which tenant departed the property and returned the keys, so that it is clear when the 30 days starts to run and also provide a forwarding address.
If the landlord does not then return the deposit or provide tenant with the accounting of how it was used to repair the property within 30 days, there is a presumption that the landlord is in bad faith, which entitles the tenant to the return of the deposit, plus $200 in damages (or actual damages if higher) and attorney’s fees.
If you get no response within the 30 day period, I would then suggest that you hire a lawyer and sue your landlord for the return of the deposit under the provisions of the Louisiana statute. You can also use small claims court or first city court but please remember that information found at this site is not a replacement for a face-to-face meeting or telephone consultation with a live attorney about your particular case, problem or question.
The information provided here should just be a starting point in finding your answers. Nothing transmitted to or from this website constitutes the establishment of an attorney-client relationship between you or any attorney.
Construction Issues / Liens in Louisiana
We have a client worried about their contractor or builder not paying a company it got material from due to a dispute over billing. What are the ramifications? Can the unpaid supplier file a lien against your property? Can the supplier sue you as the homeowner?
The short answer is yes. Yes the supplier whom you may not even know exists can lien your home and yes the supplier can sue you as the homeowner to enforce payment.
Under Louisiana law, the materialmen do have a right to put a lien on the property if they were not paid for materials delivered to your house and incorporated into your property.
The good news: You have a right to sue your contractor if you paid him and he then didn’t pay the subcontractor, but that won’t get the lien removed. This may mean that the only “good news” is for the lawyers.
If you can’t get the contractor to pay, you may have to add your contractor into the suit if the subcontractor sues you. The subcontractor is required to file the suit within one year of his filing the lien.
It is always recommended that you consult a real estate professional before entering into any contracts, jobs or construction endeavors.
Selling Property “As Is” in Louisiana
What does it mean to buy or sell a house or property “as is.” How important is that?
It’s actually very important in Louisiana. Unlike most jurisdictions throughout the country in which the general rule is “buyer beware,” in Louisiana the situation is really closer to “seller beware.”
The Louisiana law is called redhibition, and it entitles a buyer to obtain either a reduction of the purchase price or even a rescission of the sale if a latent or hidden defect is discovered after the sale (some type of defect).
The concept of redhibition can be waived by the buyer, however, and most or nearly all conventional closings involve the buyer agreeing to waive redhibition (the Louisiana “as is” clause), which needs to be set forth in detail in the agreement to purchase and the eventual act of sale.
This is something that must and should be discussed thoroughly with your Real Estate Agent. A buyer should understand that they should go ahead and inspect the property thoroughly and make sure they are happy with it because when the property is sold to you, the seller wants to be able to spend the purchase price without worry of having to refund the sale price.
Due to the redhibition concept, the seller really isn’t able to do so because if the buyer finds some defect down the road that may or may not have existed at the time of the sale, the buyer could claim that it existed at the time of the sale and sue the seller (unless the buyer waived redhibition).
This is the reason why most sales involving real estate agents are “as is” and also involve detailed property inspections to provide buyers with security and peace of mind.
If the sale was not “as is” the buyer could then seek either a reduction in the purchase price or if the defect is bad enough, a rescission of the sale. In either event, the seller will have to defend a lawsuit, which would cause a lot of unhappy people except lawyers.
So don’t be alarmed about an “as is” transaction, just know going in that you need an inspection and that you as a buyer need to be comfortable with the condition of the property. The best way to achieve that comfort is with a team of professionals.
Can I lose my house or how do I get a 17% return?
Issues with tax sales are popping up with more regularity. So what is a tax sale? In the event that your taxes are not paid by a certain date, the Sheriff’s Office (or in New Orleans the Bureau of Treasury) will advertise your property for sale to the general public to collect the unpaid taxes. On the advertised date, the property will be subjected to a tax sale. If no one buys the property at the tax sale, the property will then be adjudicated to the local Parish in compliance with the laws of the State of Louisiana. It is important to remember that any property that has been sold for non-payment of taxes or adjudicated to the parish can be redeemed within a limited period of time. It is equally important to be advised that after a certain period of time, a property owner can actually lose his property and thus his entire investment for failure to redeem his property from a tax sale or adjudication to the Parish.
I have yet to see the excuse of “I didn’t get my tax bill” succeed at least from the standpoint of penalties and interest. So it is the responsibility of the property owner to pay all taxes, penalties, and redemption costs to the Sheriff’s Office.
Under Louisiana law, a tax deed buyer can earn as much as 17% interest on their investment for the first year. This has become big business for many people and corporations.
I always recommend that buyers purchase an owner’s policy of title insurance. The problem is that most home buyers don’t know what title insurance is or what it covers, and only see it for the first time on the closing settlement statement.
What Is Title Insurance?
Title insurance is policy of indemnity protecting homeowners and lenders from financial loss in the event that certain problems develop regarding the rights to ownership of property. While closing attorneys check each title to real estate before a closing, there are often hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.
There are two types of title insurance, lender’s and owner’s policies. Lender’s policies are required by every public mortgage lender, but do not protect a property owner. Buyers must separately purchase an owner’s policy.
Title Defects: What Does An Owner’s Title Insurance Policy Cover?
As an example, a seller recently was shocked to learn a day before the closing that there were several un-discharged mortgages and liens on her unit left over from the original developer. Fortunately, she had purchased title insurance which enabled the closing to go forward as scheduled, with the title company undertaking the obligation to discharge the liens and clear the title.
Other common title defects which are covered by standard owner’s title insurance include:
• Sudden appearance of unknown heirs claiming an interest in the property
• Forged deeds or impersonations
• Incorrect legal descriptions
• Improper recording of deeds
There is also a newer enhanced coverage policy available from First American Title and other companies which covers many situations excluded by standard policies such as:
• Building permit violations
• Adverse possession or prescriptive easements
• Building encroachments
• Incorrect surveys
• Pre-existing violations of subdivision, zoning laws, restrictive covenants.
Greetings friends and clients! We at Audubon Title hope to use this blog to provide helpful and sometimes entertaining nuggets of useful information about real estate.
What is title insurance and what do we do?
We handle the closing process. Typically your realtor or mortgage broker will recommend a title company but it’s important to remember that you can always choose your own title company.
In laymen’s terms, title insurance is the legal guaranty that you own your property.
The official definition is Title insurance is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Whoa….
Basically it’s important to make sure that your investment is safe and secure.
Did you know that Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the U.S. land records laws. It is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters.
In the coming days, we will deal with issues that may come up during the closing process and also highlight title curative issues and ways to avoid them.