Property purchased through a tax sale can be a good opportunity for a savvy investor to acquire a property at a bargain and maximize their investment. However, tax sale purchases include some inherent risks – caveat emptor (buyer beware) applies to tax sales and all property sold for taxes is sold as-is. Accordingly, a purchaser who buys property at a tax sale buys at the risk of any defect in the taxation process, such as improper assessment. In addition, there could be clouds on title that the purchaser needs to clear before they have marketable title. In this post, we discuss how to clear title to a property purchased through a tax sale.
After the buyer purchases a property at a tax sale, if they discovery a cloud on title, the purchaser may bring suit to quiet title to all or any portion of the property and prosecute it to a final judgment. However, a purchaser at a tax sale is limited to remedies provided by the Revenue and Taxation Code. This means that the purchaser would not have the right to common-law remedies arising out of defects in the tax sale proceeding itself. The majority of the purchaser’s remedies will be those remedies that any holder of real property has to use the quiet title procedures to clear clouds on title.
The first step to quiet title is to file a complaint to determine adverse claims to or clouds upon tax-deed property. It is important to note that a proceeding based on an alleged invalidity or irregularly of any deed issued upon the sale of the property by any taxing agency can only be commenced within one year after the date of recording of any such deed in the county recorder’s office. The same limitation is applicable to a defense based on an alleged invalidity or irregularity of a tax deed.
The complaint should name all known defendants with claims on title and all unknown defendants. Within 10 days after filing the complaint, the plaintiff must file or cause to be filed a notice of lis pendens to ensure constructive notice of a lawsuit affecting title to the tax-deed property.
Within 30 days after the court issues the summons, the plaintiff must post, or cause to be posted, a copy of the summons in a conspicuous place on the property. In addition, the plaintiff is required to serve all known defendants and the tax collector of the county where the real property is situated in the manner provided by law for the service of a summons in a civil action. The plaintiff is further required to serve all unknown defendants by publication. In light of the same, we always recommend our clients to obtain a litigation guarantee or, at a minimum, a preliminary title report, before filing to: (1) ensure they name all known defendants; and (2) satisfy the due diligence requirement to obtain an order to serve a complaint by publication.
Thereafter, the action generally proceeds like any other quiet title action until there is a final judgment, which requires a hearing and sufficient evidence to establish title. If the court finds there are third party interests in the property, it may order a partition.
Schorr Law has extensive experience with all types of quiet title matters, including title issues arising out of a tax sale. To see if you qualify for a free 30-minute consultation regarding your matter, please contact us by phone, email, or send us a message through our contact form.