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CONSIDERATIONS FOR INVESTING IN TENNESSEE TAX SALE PROPERTIES

Author: Attorney Matt Roberts

Tennessee tax sale properties can be a very good investment, if you know what you are doing.

While some other states sell tax lien “certificates,” which require purchasers to conduct their own lawsuit and sale, Tennessee sells the properties directly through the court, a process sometimes referred to as a “tax deed” system.  The county and/or municipality conducts the lawsuit and sale, and when the property is sold, the property is conveyed directly to the purchaser, subject only to a statutory one-year right of redemption.  During the redemption period, the taxpayer, any other owners of the property, and any other parties holding a lien against the property can pay to get it back.

If the property is redeemed, the purchaser is refunded their bid amount, along with interest at the rate of 10% per annum (set to increase to 12%, or 1% per month on July 1, 2014).  There also is a procedure that allows the purchaser to claim additional amounts through the court.  If the year passes without a redemption, the purchaser gets “perfect title” to the property, meaning that as long as all necessary parties were properly notified of the sale, their interests do not survive.  At that point, the process of securing marketable title and possession of the property begins.

Successful tax sale investing requires a significant amount of due diligence prior to bidding on the property, as well as a thorough understanding of a relatively obscure area of the law.  A prospective purchaser needs to consider, among other things, the sufficiency of notice provided before the sale, the condition of the property, the likelihood of redemption or future litigation concerning the sale, potential liabilities relating to the property, and all of the legal and practical steps that need to be taken to secure marketable title.  It is not a process to be taken lightly.  However, if done correctly, the 10% (soon to be 12%) redemption premium should be a worst case scenario.