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Title Risks in Oklahoma Tax Properties - Buy Safely to Increase Profit

Posted by Ryan A. Jones | Mar 20, 2020 | 0 Comments

Buyer beware! More specifically, Oklahoma tax sale buyers beware! When purchasing from an Oklahoma tax sale, you should confirm title via a quiet title action. A tax property is not insurable and marketable right after the auction. Most of the time, you must do a quiet title action in order to obtain title insurance and then sell or refinance the property. 

According to Oklahoma County's guidelines for purchasing property from an Oklahoma tax auction:

"This is a BUYER BEWARE sale. A tax deed is not a warranty deed and the County does not warrant title to any property sold. The buyer assumes all responsibility and liability upon the purchase of these properties. While it is the decision of each buyer, each purchaser should give consideration to the filing of a quiet title action in District Court in order to insure a more marketable title."

But why? You paid good money and obtained a Tax Deed from the County Treasurer. How could anyone possibly challenge your title? Unfortunately, holding record title and holding insurable title are two different things. After you obtain a Tax Deed, you hold record title. You could immediately enter a purchase contract to sell the property. But when your prospective buyer applies for title insurance, the title insurance company will discover that you purchased from a tax auction. Being extremely risk sensitive, the title insurance company will worry about a defect in the County's tax auction. If the defect was serious enough, such as lack of notice to the previous owner, then the previous owner could conceivably make a valid claim of ownership to the property. This would require the title insurance company to pay out on a claim!  Anathema!

In other words, it appears title insurance companies do not trust the tax auction process to completely extinguish the legal rights of owners and lenders prior the tax auction. Practically, it is unlikely that a prior owner or lender has a valid claim of ownership. But to prevent unnecessary risk, the title insurance company will require a quiet title action against the previous owner and lender (if any). By naming the previous interest-holders in a quiet title action, the new purchaser completely extinguishes any claims of ownership from those parties. At that point, title should be fully insurable and marketable, thereby increasing property value.

Of course, investors can shortcut this process by selling to a party willing to accept the Tax Deed without title insurance. But the pool of buyers willing to accept a property without title insurance is extremely small. So, without a quiet title action to make the property insurable, the market value of the tax property suffers dramatically due to lack of demand.

If a quiet title action is necessary, what is the cost, timeline, and process? An uncontested tax sale quiet title may cost between $1,500.00 and $2,500.00 in attorney fees. It may take 8-12 weeks to obtain final judgment, but you can work on rehabbing or marketing the property in the meantime. If an attorney is charging extremely low rates for a quiet title, he may be skipping some important steps. If an attorney is charging more than $2,500.00 for an uncontested tax sale quiet title, with no special issues, he is probably feeling very special about his hourly rate.

For more detailed information about the quiet title process, download our free quiet title handbook (no email required): An Introduction to Quiet Title Actions. Or, review our quiet title articles below:

As a property lawyer, I focus heavily on quiet title actions, so feel free to reach out for estimates or consultations.

- Ryan Jones

About the Author

Ryan A. Jones

FOUNDING ATTORNEY - Practice focused on property, title, & real estate investing.

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