Tax sales are a specific type of property sale in Canada. This article explores what’s involved and how you can make the most of the situation as a buyer. The steps are very similar to purchasing a repossessed property anywhere, so will be useful if you are looking to buy property via a discounted route in any jurisdiction.
For a buyer, a tax sale or repossession is a chance to obtain a property at a discount, though not without risks. A tax sale is designed to recover property tax arrears outstanding for at least two years. The municipality manages the sale, which occurs through an auction or public tender.
If you want to walk away from a tax sale or repossession with your own house, here is what you need to do to make it happen.
Thorough Look at Local Listings
Comb through your local tax sale or auction listings to see what property is for sale, the minimum bid amount, and any other details or descriptions the municipality may have included. Knowing this information will help you navigate the process of tax sales.
Look at the House From the Road
This is the extent of a home inspection on a tax-sale house. A property can be viewed from a public area. However, you are not allowed to complete a home inspection if the current owner does not allow it, and you cannot trespass.
Don’t Rely on Google Maps
See the tax sale or repossession property in person. Refrain from relying on Google Maps to tell you anything about the area. Maps have dated visuals, meaning that what it looked like when the photos were taken may be entirely different.
Recognize You’re Buying A House As-Is
You buy a tax-sale or repossession home without a guarantee of condition or vacancy. There is a risk here, and there is no warranty, either. Once it’s yours, it’s yours. It’s imperative to research as much information about the land, the house, and the neighbourhood before bidding.
Run a Title Search
A title search will reveal if there are any title issues, claims, or restrictions. Of course, you will want to know if Crown interests or claims on the property could transfer the land to you. This could dramatically increase ownership costs.
Research the Area
If you’re considering re-selling a tax sale or repossession home later, look at the area or neighbourhood. See how much the land is worth and what other properties sell for. Discover if there’s a demand for living there or the market is quiet.
Submit a Tax Sale Bid
Whether by auction or public tender, the only way to submit a bid is through cash, a certified cheque, or any other payment method the municipality accepts. It sometimes comes with registration documents to fill out, such as when bidding publicly.
Auction Experience
A tax sale or repossession auction is fast and high-pressure, and people overbid. When bidding in an auction, you will want to show up with funds in hand. You will want to start bidding low and respond to other bids as the price increases.
Should bidding exceed your budget, don’t overbid. Instead, step back and hold your funds for another property later in the auction or next.
Public Tender Experience
Public tender is less stressful; however, it requires strategy. It’s a bid submitted by mail, meaning you only get one bid. This means you may want to maximize your offer to the best of your abilities. Public tender also involves filling out certain forms and registration documents, which must be completed.
Lastly, this type of tax sale or repossession often involves sending a deposit by mail alongside everything else. Your municipality will advise you on how much is required. It is typically 20% of your tender amount.
Ensure Your Tender Is Not Rejected
Avoid your tender being rejected by following these key steps based on others’ mistakes.
- Ensure the tender amount is equal to or above the minimum amount.
- The tender should be typewritten or handwritten.
- Ensure the deposit is made in a payment acceptable to the municipality.
- The sealed envelope should have written that it is for a tax sale.
- Address the envelope to the Treasurer.
- An envelope should contain at most one tender.
You are not restricted to tendering on only one property. If you submit multiple tenders, however, each requires its own submission, with its forms filled out and an envelope.
Pay the Closing Costs
Unlike a traditional real estate purchase, a tax-delinquent property has very few—if any—closing costs. You must pay all applicable taxes, including arrears. You are also responsible for any costs associated with the transfer of ownership.
Consult a Lawyer If You Win
If you have the winning bid, consult a lawyer if you have to arrange for an eviction or if there are complications with the home in some way. A lawyer can help you navigate this terrain legally and ensure you’re protecting your investment.
Your Sale May Be Cancelled
Most tax sales fail. The prior owner redeemed the property within the grace period, and it’s returned to them. Depending on how your municipality runs a tax sale, this can happen any time before the ownership transfer is finalized. Be prepared to have this happen to you.