Tax Sale Guide Home
Redeeeming
Chapter: GENERAL QUESTIONS
Gmangg
Now how does it work if these people come up with tax money and save the potential tax sale. What happens to their mortgage lets say.. it's most likely that if they are behind on property taxes that they are behind on their mortgage too? Is the mortgage lien removed? I can't see that happening. It might eventually result in a foreclosure..no ?
bearowski
Have run into some ambiguity regarding the length of time the default owner has to redeem should a property be sold to tender or auction
Frank
This was the subject of much debate until a coupla years ago (in Ontario). There was a court case in which it was ruled that until the tax deed is actually registered in your name, the old (defaulting) owner still owned it (it is still in his name at the Registry until you are registered as the owner) and he was able to pay up the taxes owing, at that point the municipality is to cancel the sale and give you back your money. That is the reason you want to come up with the balance of funds real fast and get them to register the deed in your name - don't give the defaulter any more time than they have already had to redeem their property.
In some other provinces (Quebec for example), the old (defaulting) owner has a year to pay up, and in those case the amount he has to pay are no longer the taxes owing, but the amount that you bid - he essentially can rebuy it from you (the successful bidder) for the amount you paid. During tht time-frame it would not be in your best interest to spend any money improving the property since that would be lost.
Once the sale is held, the Treasurer will then review all bids to ensure that none should be tossed out and make a final determination as to who the winning (and second) bid was from. All other bid deposits are then returned to the bidders.
The Treasurer will then inform you in writing that you have two weeks to come up with the balance of funds - and the exact amount payable (there will be additional taxes accrued as well as GST - if applicable, and land transfer tax). You don't need a lawyer to complete the transaction as the Municipal agent will do all the paperwork.
Once you have come up with the balance of funds (this is the part that I suggest you not delay in, and in fact pressure the Treasurer for a final figure ASAP), the Town's agent/solicitor will prepare the necessary land transter tax affidavit which you must sign. You should find out when this will be ready and make a trip there to sign it if you can rather than wasting time with courier services - again time delays in getting the deed registered gives the old (defaulting) owner more opportunity to waltz in and pay the taxes - resulting in a cancellation of the process and you've lost the property.
Once you have turned over the money and signed the papers, all you can do is wait. Regular phone calls to the Treasurer's office or their agent will also assist at this point in ensuring that your purchase doesn't get lost in a sea of paperwork, and that the tax deed gets registered in your name expeditiously. Don't harrass them, and don't tell them that I told you to do it, but be a pain in the neck - the squeaky wheel gets the grease.
Frank
Once the taxes are paid and the sale is cancelled, the whole matter becomes a private affair which is the owner's personal business. How they came up with the money is of no consequence to us and it simply means they have an alternative debt (instead of the municipality) to someone else, be it a family member, friend, or mortgage company.
All liens on title that were there before the registration for back taxes are still there, they would only get cancelled in the event of an actual tax sale. If you are interested in a property and you keep an eye on it after the cancellation you might see it go for sale privately or on the market - I would assume that there could be a deal there to be had, but again that is a private matter.
Rob
Do you know what amount the previous homeowner has to pay back to get the home within the year redemption period? Do they pay the back taxes + late fees or do they pay the winning bid + interest or some other amount?
Gap
My understanding (confirmed by two different municipalities) and by researching the Municipal Tax Sales Act - Ontario Regulation 181/03, is that if for a period of years taxes remain unpaid, they have the option to issue a Tax Sale Arrears Certificate onto the title. Then, from that point on (the date of the tax arrears certificate on title), the purchaser has a one year redemption, and more, if the municipality formally agrees to that, to pay the arrears. After the one year lapses, and in some cases longer, then the tax sale is advertised. And, at that point the municipality must register a Statutory Declaration against the title showing that they have passed the one year period and notified everyone by mail, made all efforts, etc. This happens before the tax sales even get to us.
So, we only hear about it AFTER the one year redemption period is over, which means we're not at any risk of the original owner coming back to haunt us. To further confuse the matter, the original owner has one year after the tax sale to apply to the Superior Court for re-imbursement from the municipality (NOT US) for the profit they made over and above the taxes owing at the time and any other associated fees ($60 to register against the ded, any court costs, etc.). But again, this has nothing to do with us, the new owners of the property. Once you are declared the winner, and you send the other 80% in the tender sale or immediately pay the total bid in an auction, then getting full title to the property is only a formality - you basically have to wait until the city's attorney gets the paperwork ready.
Here is the excerpt verbatim from the Ontario Regulation 181/03, Municipal Act 2001, Filed May 5/2003. Municipal Tax Sales Rules
Schedule 1
Tax Arrears Certificate registered against the land.
"that the land described in the certificate wil lbe sold by public sale if the cancellation price is not paid within 1 year following the date of registration of the tax certficate....can claim entitlement for a share in the proceeds over the tax amount by applying to the Superior Court of Justice within one year."
So, basically when you win, you win. There is no recouping by the previous homeowner AFTER you win your bid and the sale is closed and you are declared the winner; they can just recoup extra money paid out if they apply to the courts. The only exception to this rule is that the municipalities have allowed payment up to and just before the public sale, in which case it's at their discretion to cancel it, and of course, they always do (don't want to look like the bad guy). And anyways, it makes me feel better to know that they have all those opportunities before I have access to their properties. People can fall on hard times. It could happen to me, and I'm happy to know that I get all the chances possible. Hope I've answered the question.
P.S. I have absolutely no knowledge (yet) about anything outside of Ontario and tax sales are provincial matters, so all this only applies to Ontario.
Frank
You are correct, except for the following:
“The only exception to this rule is that the municipalities have allowed payment up to and just before the public sale”,
That was the rule that most municipalities followed until a few years ago with a court case that awarded the property back to the old owner after the sale had been completed. Basically, the court said that as along as their name was still on title, the municipality had to accept payment of the back taxes and cancel the sale. Anytime up to minute the tax deed is registered in your name, the old owners can still redeem the property and you are s.o.l. - you get your money back of course. That is why I have been stressing that if you are the high bidder do not waste any time getting the balance of money to the municipality and make the drive to sign the papers the minute they say they are ready - don't wait for a courier, you could lose by dragging your feet.
And as to the previous owner getting their money back. The last property which I purchased, I made contact with the the old owner and advised the elder lady of her rights to go after that money in court - she was very grateful and is pursuing it. If the old owner, or a lien holder (such as a mortgagee) doesn't come forward within a year of the municipality paying the 'excess proceeds' into court, then the municipality has the right to go after it and land a nice windfall.
Jim
I believe that the specific court ruling Frank is referring to can be found here:
http://www.canlii.com/on/cas/onca/2004/2004onca11393.html
I first heard of this new policy at a tax sale in Haldimand back on October 27, 2004, just a short time after the ruling came out.
Frank, (P.S. Cool picture)
Yes, but so far in my experience, the municipality quickly gets the title stuff ready. I haven't had to wait longer than three weeks so far. That's not a year after you gain title as some people think, it's only for the time between the final tax sale and the title changing hands. And even if they do exert the rights under that court decision, some municipalities may not follow the policy. Informally, there are at least four municipalities that don't seem to even know about that.
However, in the worst scenario, I suppose that you could win the bid, wait a month or so to get it registered and the new owner comes forward, wants to pay and the municipality follows the policy of the decision (or knows about it - and we would have to assume the person knew about it, too), and you lose the property. The way I look at it, so what. I mean, these real estate experiences are extremely rewarding from the learning perspective. I haven't done anything without learning some valuable lessons. AND, you get your money back anyways. You would only be out of pocket your incidental expenses, which you can consider the cost of doing business (and certainly worth the financial pay-back you will make on one of the property you'll win big on...)
If you want to reduce your risk even further, you could, after your due diligence, (title search, etc.) check the internet for obits by typing in the name of the person enclosed in quotes, add a + sign, and quote the town name, this could bring up someone who died a few years before the tax sale - which likely means there's no emotional desire to preserve any property (estates aren't as emotional about their property, especially if the kids or executor's don't know the value, or can't see the potential value), nor are the as quickly aware of the tax sale as someone personally following it would be - giving you the time to get the deed registered.
I just really wanted people to understand that it's not quite the risk people think, in that original owners don't have a year to come back after the sale. It's incorrect information and could scare people away from potential financial freedom, or at least, a bit of financial ease for their families in exchange for a little part time work and a great new learning experience.