Tax sales that get cancelled--how to protect yourself
Source: OntarioTaxSales.ca
Canada
Perhaps the biggest frustration that tax sale investors run into is sales that get cancelled. Here’s a look at why tax sales get cancelled and what you can do to reduce your risk of losing money because of a cancelled sale.
An all too common senario
You see a property that looks like it may be of interest to you, so you buy a tender package. You look at the assessed value, the minimum tender amount, and all the other details. Now you’re even more interested, so you invest half a day of your time and go and have a look at the property.
The property still looks like a good investment, so now you order a title search. The search shows that there are no mortgages or liens that will affect the property after the tax sale.
You decide that you want to buy this property and settle on a price for your tender. You go to your bank and get a certified cheque for your deposit. You fill out the required form and send your tender off to the municipality by courier.
Then you wait for the day of the tender opening to see if you’ll be the person who gets to buy this property. And then the municipality cancels the tax sale.
So what happens now? The municipality will promptly mail your certified cheque back to you. But you won’t be compensated for the time you spent investigating this property. Nor will you get a refund for the money you spent on a title search or a tender package. Nor will the bank refund the money that it charged you to prepare a certified cheque.
Why do tax sales get cancelled?
The most common reason by far is that the property owner presented the treasurer of the municipality with a certified cheque or money order for the full amount of taxes owing, including costs and interest. The treasurer accepted the payment and used his or her legal authority to cancel the tax sale.
Why would the treasurer choose to cancel the tax sale?
For many years, most treasurers went by the following rule-of-thumb: they would accept payment in full only until they began advertising a property for tax sale. After that, they would not accept payment; they would proceed with the tax sale.
That changed a few years ago as a result of a court case called the Cunningham Case. To make a long story short, the municipality refused to accept payment in full from a property owner, Mr. Cunningham, after tax sale procedures were under way. Mr. Cunningham hired a lawyer and the case went to court, and then to the appeals court.
The judge ruled in favour of Mr. Cunningham. The judge also ordered the municipality to pay $40,000 for Mr. Cunningham’s legal costs. The municipality also had to pay tens of thousands of dollars for its own legal costs.
As a result of this case, most municipalities will now accept payment in full at any time before a tax deed is registered. They will then cancel the tax sale. They do this because they don’t want to become involved in a court battle; they just want to collect the outstanding taxes.
When can a tax sale not be cancelled?
As soon as a tax deed is registered it is impossible to cancel the tax sale. When your tax deed is registered the property becomes yours and neither the municipality nor the former owner can change that.
So what can you do?
Our best advice is to take steps to reduce your risk of spending time and money needlessly. There are two ways to do this. First, don’t order a title search too far in advance. Second, if you have the highest tender, pay the full amount of money owing as soon as you possibly can.
Don’t order a search too far in advance
Here’s an example. Today you order a title search for a tax sale that is happening three weeks from now. A day or two later the completed search is sent to you. A week after that, the tax sale gets cancelled. So now you’ve spent a hundred dollars or more for a search that doesn’t do you any good. If you had waited until three or four business days before the day of the tax sale, this particular sale would have been cancelled before you spent any money on a search.
How long can you wait before ordering a search?
If you order a search the day before a tax sale, we cannot guarantee that we’ll be able to get the search done and emailed to you on time. We will be able to email it to you on time if you order it at least two business days before the tax sale. For example, if you order a search on Monday for a tax sale that’s on Wednesday, we’ll email the search to you before Wednesday afternoon. We’ll try our best to get it to you on Tuesday, but can’t guarantee next day delivery.
What if there's a large Crown interest registered against the property?
If you have already submitted a tender, you might want to withdraw it. To withdraw a tender you must make a written request to do so, and that request must be received by the treasurer of the municipality before the date and time of the tax sale (usually 3:00 pm). A verbal request cannot be accepted. You can submit a written request by fax. If you do submit a request by fax, we recommend that you follow up the fax with a phone call to ensure that the treasurer has received your fax.
Does OntarioTaxSales.ca get notified when a tax sale has been cancelled?
FEATURED PROPERTIES—Yes, we get notified
Municipalities are supposed to notify us immediately when they cancel a tax sale, and they almost always do. Within a few minutes of receiving notification of a cancelled tax sale, we
Send out a tweet on Twitter http://twitter.com/ontariotaxsales
Mark it CANCELLED on the website.
Make it impossible for people to order searches from us for that property
Before you drive out to a municipality to attend an auction or tender opening, please check the website to make sure the sale hasn’t been cancelled!
OTHER PROPERTIES—Usually we are not notified
We recommend that you check with the municipality before you order a search. We recommend that you check with them again before you drive there to attend the tender opening or auction.
If you are the highest tenderer pay the balance owing as soon as possible
Remember, the sale can be cancelled at any time before the registration of a tax deed. So it’s in your own best interest to get the tax deed registered as soon as possible. To facilitate that, you need to pay the balance owing on your tender, plus Land Transfer Tax, GST and Accumulated Taxes, as soon as you possibly can. The municipality will advise you in writing of the exact amount that you must pay.
Risks can be reduced, but not eliminated
The above steps may help
reduce the risk of you losing the money you’ve invested by investigating a tax sale, but they cannot
eliminate the risk. Even if you do a search yourself at a land registry office, you will still have to pay for it, and the sale could still be cancelled.
There’s no getting around it. Until a tax deed has been registered, any tax sale can be cancelled. This is a risk that you must accept if you wish to participate in tax sales.
Copyright 2009 Jeff Oberman
About the Author:
Jeff Oberman is the founder and president of two companies, OntarioTaxSales.ca and Realtax Inc. Jeff and his staff have helped Ontario municipalities to conduct over 1,500 tax sales. He has written numerous articles on tax sale-related issues that were published in various trade publications, and he has conducted seminars for numerous professional organizations.