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Intervening In Tax Sale Foreclosures

Many real estate investors attend “tax sales” and buy up tax sale certificates on properties whose owners are behind on their real estate taxes. Municipalities, in order to generate cash flow, will offer to the public the opportunity to bid in at a tax certificate sale on those properties whose taxes are seriously delinquent. Many certificates, depending on the bidding, will pay an attractive rate of interest, sometimes at or around 18%. If the property owner fails to pay off the certificate amount plus interest within two years, the certificate holder may then foreclose on the certificate. If the owner again fails to pay off the certificate during foreclosure action, the certificate holder will ultimately get title to the property free and clear.

Most investors holding certificates are only interested in getting their certificate paid off. But, others, whether or not the certificate holder, are truly interested in a particular piece of property that is being foreclosed. Many third party investors interested in obtaining title to a property have been surprised to learn, however, that once a certificate holder has commenced a foreclosure action, they cannot simply show up at the tax office, pay off the certificate, and buy the property from the owner.

How then does a potential purchaser who was not the successful bidder at a tax sale, position itself to be able to obtain title to the property during the course of a foreclosure action? The first step is to cut a deal with the owner. The deal cannot be a “sweetheart” deal; it must be arm’s length in nature, and must benefit the property owner. Once that is done, the potential purchaser must file a motion in the foreclosure action and get permission from the court to “intervene” in the action. The reason for this is that once a foreclosure action is filed, the court has the responsibility to ensure that the property owner is treated fairly and not taken advantage of by some crafty third party real estate speculator.

Once the motion to intervene is timely filed, the potential purchaser must convince the court that the transaction will benefit the property owner by showing that it is for more than “nominal value” and offers the owner a real, tangible and meaningful benefit above token value, and not one that would be unconscionable under all the circumstances.

If the court is satisfied that the property owner’s “deal” with the third party potential purchaser is above board and fair under all the circumstances, the court will enter an order permitting the third party the right to pay off the tax sale certificate, thereby allowing the purchase transaction with the owner to proceed.