Actions to Confirm Tax Sales for Real Estate Investors and Purchasers

J. Greg Brown

Harrington, Miller, Kieklak, Eichmann & Brown, P.A.

Purchasing tax delinquent land from the Arkansas Commissioner of State Lands has become incredibly popular among savvy real estate investors.  Often, tax delinquent properties are sold at a fraction of their actual value.  To make these purchases profitable, however, a wise investor or purchaser must understand and follow the legal requirements in order to gain “marketable title” following such a purchase.

How do tax sales work?

All Arkansas tax sales are conducted by the Arkansas Commissioner of State Lands.  Once real estate taxes have been delinquent for one year, the County Tax Collector may “certify” the property to the Land Commissioner.  In essence, this “certification” process dispossesses the landowner and vests title in the State of Arkansas.  The Commissioner sends notice to the owner, lien claimants, and others who may claim an interest in the property.  Once the Commission is satisfied that all lien claimants have received notice of the sale, or at least “constructive notice,” the Commission then advertises the property for public sale and publishes notice of the sale in several locations.

At the public sale, tax delinquent properties are sold to the highest bidder.  If there are no acceptable bids, the property will become available for purchase directly from the Land Commissioner following the State’s Post-Sale procedures.

Selling or Insuring Properties Purchased at Tax Sales

Title to tax delinquent property is conveyed from the Commissioner of State Lands by a limited warranty deed or a commissioner’s deed.  The Commissioner of State Lands does not insure or warrant that the title conveyed is clear or marketable. In most cases, the purchaser will be required to file a legal proceeding to quiet the title or confirm the title before the title is marketable.

While the vast majority of tax deeds may be confirmed fairly quickly and inexpensively, there are exceptions.  For this reason, attorney Greg Brown assists his clients in obtaining a Title Commitment from a reputable title company prior to initiating any legal proceedings.  In this way, we are able to effectively communicate the costs of the proceeding prior to beginning the process.  Further, we can assure our clients that we will obtain marketable title and that such title will be insured against defects by a title insurance underwriter.

Many people, even attorneys, make the mistake of initiating a quiet title action or an action to confirm the tax sale without first obtaining a title commitment.  The problem with this approach is that the tax sale purchaser obtains no insurance and will have to pay out-of-pocket in the event that additional liens or claims against the property arise at a later date or face the possibility of losing the property.  Further, nearly all tax sale purchasers will be required to obtain title insurance before selling the property to a third party anyway.  The cost of a commitment is negligible and provides great benefits to any purchaser.

Liens & Mortgages

Arkansas law requires the Commissioner of State Lands to notify all interested parties known by the Commissioner of State Lands of a tax sale. The law defines an interested party as someone who holds title to or interest in the property at the time of certification to the Commissioner of State Lands. Therefore, lienholders whose interest in the property is of record at the time of certification are interested parties and entitled to notice of the sale. In the event the Commissioner of State Lands does not provide proper notice to such lienholders, they then have the right to challenge the tax sale. The Commissioner of State Lands does not always have access to information identifying lienholders or interested parties. Consequently, proper notice of these parties is not guaranteed. This, too, is an important reason we first obtain a title commitment.  In the event that the Land Commissioner has failed to discover a lien, the commitment will disclose this fact.

When to Initiate the Quiet-Title Action

In most cases, we initiate a quiet title action or an action to confirm the tax sale 90 days after the sale.  By law, the original owners, lien claimants, or others with an interest in the land are permitted to “redeem” the property by paying the delinquent taxes and all associated fees within 90 days of the public sale.  We recommend, therefore, that our clients avoid putting money into the property until 90 days have expired.  Further, in some cases we recommend avoiding additional expenditures until we have received a judicial decree.  While many expenses may be recovered in the event of redemption, it is simpler to avoid these expenses until title has been properly obtained.   Further, there are exceptions to the 90 day rule which permit certain persons or entities to redeem even after 90 days have expired.  If you would like to know for sure which rules apply to your purchase, we would be happy to review your situation.  Utilizing our experience in handling hundreds of quiet title actions, we can typically answer all of your questions during a quick meeting or phone call.

Avoiding Pitfalls

Quieting title to tax sale purchases requires strict adherence to the rules.  Many people have lost property and money due to mistakes made during the process.  Years after the entry of a quiet title decree, purchasers may still lose their property if that purchaser or attorney has failed to meet every requirement to effectively quiet title.  The majority of these failures are avoidable by an attorney who is experienced in these matters.  Numerous purchasers have lost their tax properties by virtue of a simple mistake made in providing notice, service of process, publishing notices, posting properties, or by failing to comply with the formalities necessary to obtain title.  It is vital that purchasers seek the advice of an attorney with experience in working with tax sale investors and purchasers prior to initiating any suit to perfect title.

Greg Brown of Harrington, Miller, Kieklak, Eichmann & Brown, P.A. routinely consults with investors prior to and following a tax sale purchase to assist purchasers in making informed decisions and effectively acquiring title to these properties.  He represents tax sale purchasers across the State of Arkansas.

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