Mortgage on Tax Sale

[Pawel]

While directly obtaining a mortgage on a tax sale is basically impossible, there are ways around this. The first one I purchased (being young and more risk-adverse) I used a line of credit. Fortunately, I lucked out and was able to convince private investors to finance me for future purchases. Always purchase these types of properties under a corporation (it is not worth the personal risk). And once you purchase a piece of land in full payment, you can then use the bank to take out a mortgage on the purchased (in full) tax sale to bank-roll the next acquisition. I am probably not as wealthy as some other members on this board but everyone has to start somewhere...

[PG]

I was naive with my first and recent tax sale purchase. As a lawyer, I diligently read through all of the posts on this site and on other Ontario tax sale sites regarding paying for tax sale properties.
I explained to a major bank that I was intending on bidding on a property and that I would need to close the deal in 14 days or would forfeit my downpayment. The bank agreed that it would bank roll me for the transaction.

I won the bid of $227,000 and submitted my deposit of $45,000 which had been drawn from a personal line of credit.
The day after winning the bid, I returned to the bank to arrange for the financing of the remaining $182,000.
After explaining to the bank in detail that this was no ordinary real estate transaction, the bank could not wrap their heads around the transaction.

Seven days passed from the date of the sale before the municipality informed me what the total balance would be on the property taking into account the taxes that had accrued since the tax sale and the land transfer tax.
With only seven days to pay the full amount, the bank was scrambling to finance the deal. I reminded the Bank that I was required to finalize the deal within 14 days of the date of the sale even though the municipality had only given me 7 days notice of the final amount payable.
On the 13th day, the bank sent me and the municipality's lawyer an email stating that it required more time to finalize the financing and that it couldn't forward me the money in the allotted 14 days.
Although the municipality's lawyer was empathetic to my situation, the fact was that there were 40 other people waiting in line for me to default on payment so they could have a kick at the property.
With 24 hours to either pay $182,000 or lose $45,000, I maxed out every line of credit and credit card that I had and  begged and pleaded with several family members to bank roll me for the remaining balance. On the 14th day at the 11th hour I paid the full balance to the municipality.

It then took a full month for the ministry to transfer the title into my name, all of which time I was paying huge interest on my maxed out credit cards.

Finally after title transferred, I went to the bank with clear title, MPAC's assessment on the property and the value of current houses on Realtor.ca and convinced the bank to give me a line of credit for the full purchase price of the property since the purchase price was equal to 65% of the assessed value.

This was a good lesson learned, but could have ended disastrously. The lesson that I learned, which other members have point out, is that if you can't pay cash for a property within 14 days of the sale, you can't afford to buy it.

[MikeS]

That is all well and good, but in the end was it all worth it? what is your equity in the home right now?

[PG]

$50,000 - $75,000
Three people have since offered to purchase the property from me.
I feel that it has been well worth the effort.

[netpred]

That is all well and good, but in the end was it all worth it? what is your equity in the home right now?

I think the point was that the bank would not loan funds until after the property had been purchased. The fact that it turned out to be a great deall is not relevant to how the purchase was financed. This story serves to reinforce the theme of this thread - if a bank won't finance event a great buy on a tax sale, do you think that a bank would touch something that is more typical of a tax sale and that may require extensive rehabilitation?

[Frank]

That is all well and good, but in the end was it all worth it? what is your equity in the home right now?

I think the point was that the bank would not loan funds until after the property had been purchased. The fact that it turned out to be a great deall is not relevant to how the purchase was financed. This story serves to reinforce the theme of this thread - if a bank won't finance event a great buy on a tax sale, do you think that a bank would touch something that is more typical of a tax sale and that may require extensive rehabilitation?

Right on Netpred
The old saying that it takes money to make money was never truer than in the case of tax sale properties.  You can't bid more than you can get, and bank on the theoretical value of the property you are bidding on, since no one will give loan you money....except for this guy I know that also sells watches that are hung on the inside of his overcoat...psst, hey buddy, wanna buy a watch. 

[Dave2]

$50,000 - $75,000
Three people have since offered to purchase the property from me.
I feel that it has been well worth the effort.

Finally getting caught up after being out of touch for a few days in the far north.

My concern generally is risk / reward ratio.  Assuming all your numbers are correct you are only making a 25 - 30% profit margin.  For an "as is" purchase this does not sound to me to be an adequate margin of safety given the unknowns and risks usually associated with a tax sale.  Of course that maybe okay if you have inside local knowledge.  

I am also leary of placing too much of my capital in a single bet.  I have run into "Murphy's Law" more then once. One of the key issues we tend to overlook is the amount of time and effort that maybe needed to make it work out. 

It also sounds like you also have the fortune not to answer to a higher power called a "wife".  Mine can be brutal in her observations behind closed doors and for better or worse she has veto power over everything I do.  Of course after almost 35 years of marriage I consider this a small price to pay for the other benefits.  The Beach Boys said it best in their song "California Girls" about the Northern Girls.