If a property has been sold at a tax auction, the owner and other interested parties may have the right to collect the sales surplus of the tax. If you are a homeowner or real estate investor and are interested in how the tax surplus sale process works, read on to understand what tax surplus sales are, who can claim tax surplus sale, when you can apply to claim any surplus tax sale and how to apply for surplus funds.
What is a tax surplus or a tax surplus?
If a property has an unpaid tax, the county tax collector will issue a tax burden on the property in an effort to recover overdue taxes. Eventually, if the defaulting taxpayer fails to pay the overdue taxes, the property will go to sale tax deed at a public auction. At the sale of the defaulting tax, the property is sold to the successful bidder, who for most treasurer offices is the highest bid above the defaulting property tax plus penalties, taxes or assessments.
When a property is sold to a tax foreclosure sale for an amount greater than the total amount of the defaulting tax, any funds in excess of that amount are deposited into a surplus account, which can be claimed and collected by interested parties as the owner of the property, heirs to a property, or even the mortgagee, depending on the circumstances.
Who can claim a sales tax surplus?
State law defines who has the right to collect the excess tax after a sale, which in most states is in default by the owner of the property at the time of the auction. There are some states that do not offer sales tax surpluses at all; in these cases, the state becomes the rightful owner after the sale regardless of whether or not there is excess value. Meanwhile, in other states, parties with fair interest, such as an heir or mortgage lender, may also have the right to collect excess money under certain circumstances.
For example, suppose a state grants fair parties the right to overage and the owner of the property owes $ 65,000 on the mortgage and $ 18,000 in property taxes. The property sells at auction for $ 100,000. After you pay the sales tax to the tax collector for conducting the sale, $ 80,000 is paid into the surplus fund. Since there is a registered first degree mortgage on this property, the lender has the right to claim up to the balance of the mortgage, which in this case would be $ 65,000. The remaining money ($ 15,000) would be owed to the previous owner as long as the previous owner makes a request to raise the funds.
When can I apply for a sales tax surplus?
Tax law varies from state to state and sometimes county to county, so some variations will affect the length of time it takes to apply for these funds and the fundraising process.
If the state has a redemption period – which is the period of time given after the sale to interested parties, such as the property owner or mortgagee, to redeem the sale by paying a specified amount to the winning buyer or treasurer of the county – then the surplus cannot be claimed until the expiration of that period. Some states will also limit the amount of time the money can be requested, which can range from one year to up to 10 years, while other states have no limit.
For example, in South Carolina, tax sales surpluses belong to the “owner of the record immediately before the end of the repayment period” and are available for claim and payable “ninety days after execution” of the deed of sale. of taxes. A property owner or lien holder with legitimate interest must collect money within five years of the tax auction date.
In Georgia, however, the tax sales surplus belongs to the owner of the record on the deed of collateral or to any other party with a registered equity interest, such as a lien holder. The interested party can file a complaint at any time after the auction date. If multiple claims are filed, the funds are paid out in the order in which interests appear and in the order of priority in which their interests exist as determined by the court.
How can the landlord apply for the sales tax surplus?
As mentioned above, the procedure for filing a complaint varies from state to state and county to county. For some counties, if there are excess funds, the county treasurer’s office will send a certified letter to all interested parties informing them of the excess sales funds and the process to request and collect the money under provincial or state law.
Tax commissioners in other counties require all interested parties to submit applications by mail or fax without any formal notice that there is a surplus from the sale.
Using the sales tax surplus as an investment
There are some advocates for using surplus sales tax as a investment strategy, but in my personal opinion, this method of buying or selling real estate is a risky undertaking.
In the real estate investment space, some investors talk about helping homeowners claim excess funds and earn a commission or percentage of the surplus allowance. However, this practice is highly frowned upon in the legal community and can be seen as predatory in some states. Many counties strictly prohibit the application or trading of any surplus funds with anyone other than registered stakeholders or previous property owners.
Another investment strategy suggests marketing for property owners who risk losing their property to tax foreclosure by negotiating an extremely low purchase price using a act of waiver affix yourself to the title before the sale. Once the property goes up for auction, they would then have the right to collect any surpluses, assuming there are any.
While these strategies are likely to be practiced, they are risky and assume that the bids for the properties will be high enough that you have money to raise in the first place, which is not the case in many cases.
As you can see, the tax over-selling process can sometimes be confusing. Your right to collect any surpluses and the process you need to follow to claim them will largely depend on the location of the property and the state in which you reside. If you feel you have the right to exceed a tax sale, contact your local treasurer to see if they have a list of excess funds and speak to a licensed professional before working with anyone to help you through the process of filing a claim.