Texas property tax sales: bidding, deeds and the right to redeem

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A Texas property tax sale is a court-ordered auction with two audiences. The bidder wants to know what the winning bid buys and how firm the title is. The former owner wants to know how to get the property back, at what price, and what becomes of any money left over once the taxes are paid. The Texas Tax Code answers both in the same pages: chapter 33 covers delinquency and the tax suit, and chapter 34 covers the sale, the proceeds and redemption.

This guide follows the order in which things happen: the lien and the suit, the day and place of the auction, the opening bid, the paperwork a bidder must show, the deed, the redemption periods and their premiums, the surplus held by the court clerk, and the resale of property that nobody bought. Every rule below is Texas law as the Tax Code and the Texas Comptroller of Public Accounts state it. County practice differs on several points, and those are named as they come up.

Texas Tax Code, section 34.21. Periods run from the date the purchaser's deed is filed for record.

From an unpaid bill to a lien and a lawsuit

The story starts with an ordinary tax bill. According to the Texas Comptroller, taxing units start mailing bills in October, payment is due in most cases by 31 January, and taxes still unpaid on 1 February are delinquent. A bill mailed after 10 January pushes the delinquency date to the first day of a month that leaves at least 21 days to pay; the Comptroller's own example is a bill mailed on 15 January, which becomes delinquent on 1 March.

The cost of being late builds quickly. The Comptroller's summary of section 33.01 gives a penalty of 6 per cent for the first month or part of a month, plus 1 per cent for each further month, reaching 12 per cent on 1 July, where it stops rising. Interest runs separately at 1 per cent for each month or part of a month, and the Comptroller notes that it has no stated maximum. Where a taxing unit has placed the account with a private attorney, the Comptroller says a further collection penalty of up to 20 per cent may be added.

Behind the bill sits the lien. The Comptroller explains that a tax lien attaches to the property automatically on 1 January each year to secure payment of all taxes, and that a buyer cannot get clear title until delinquent taxes on the property are paid. The lien follows the land: the Comptroller says it gives the courts the power to foreclose even after ownership has changed. Personal liability is a separate matter. A person who owned the property on 1 January can be sued for that year's delinquent taxes even if the property was sold or transferred afterwards.

The Comptroller describes the lawsuit as the collector's last resort. Under section 33.41, a taxing unit may file suit at any time after its tax becomes delinquent, in a court of competent jurisdiction for the county where the tax was imposed. Section 33.48 lets the taxing unit recover its costs on top of the tax, including court costs, the cost of filing a lis pendens, the expenses of the sale and attorney's fees of 15 per cent of the taxes, penalties and interest due.

What the judgment fixes before any auction

Three points settled by the court shape the sale that follows.

The first is the amount. Under section 33.52, a judgment covers only the taxes that are delinquent on the date of the judgment. Later years are not in it, which matters when the proceeds are divided.

The second is the value. Section 33.50 has the court determine the market value of the property as at the trial date, and presumes the most recent approved appraisal to be that value unless the defendant shows otherwise. This adjudged value is one half of the minimum bid formula.

The third is the timetable. Under section 33.53, an order of sale that has not been executed before the 181st day after it was issued is returned unexecuted. The same section keeps a door open for the owner until the gavel falls: if the owner pays the judgment before the sale, the taxing unit must release the lien and record the release.

Two other routes can stop or slow a sale. The Comptroller says some collectors accept instalment agreements of up to 36 months for delinquent taxes, which they are not obliged to offer except on a residence homestead. Section 33.06 allows an owner who qualifies for the deferral for elderly or disabled homeowners or disabled veterans to abate a pending sale by affidavit, provided the affidavit is delivered no later than the fifth day before the sale. During a deferral, no penalty accrues and interest runs at 5 per cent a year.

The first Tuesday: where and when the sale is held

Section 34.01 puts the sale in the hands of the officer charged with selling the property, who conducts it in the manner of a sale under execution unless the Tax Code says otherwise. Where the Texas Rules of Civil Procedure on executions conflict with section 34.01, the section says it prevails.

The calendar is fixed by statute. A sale takes place between 10 a.m. and 4 p.m. on the first Tuesday of a month. When that Tuesday falls on 1 January or 4 July, the sale moves to the first Wednesday. The place is the county courthouse, unless the commissioners court has designated another public place nearby; a designation binds sales held on or after the 90th day after it is recorded.

Notice goes to the people being sold out. The officer sends written notice to each defendant, or the defendant's attorney, under Rule 21a of the Texas Rules of Civil Procedure. The notice gives the authority for the sale, its date, time and place, and a brief description of the property. Section 34.01 adds that a failure to send or receive the notice does not, alone, invalidate the sale or the purchaser's title.

An owner has one statutory way to limit what is sold. By a written request delivered no later than the seventh day before the sale, the owner may ask for the property to be divided so that only enough portions are sold to cover the amount due. The request describes the portions and the order of sale, may not ask for more than four portions, and may not split a building.

Online sales run on county rules

Section 34.01 does not create a single state platform. It lets each county's commissioners court authorise the officer, by official action, to hold the public auction by online bidding and sale, and to adopt rules for those auctions. The rules take effect on the 90th day after they are published in the county's real property records.

The statute changes one thing for an online sale: the opening time. An online auction may begin at any time, but it must conclude at 4 p.m. on the first Tuesday of the month, or on the first Wednesday in the two holiday cases. A bidder therefore meets the same closing moment in every county that sells online, while the other terms of an online sale are left to the rules that county has published.

The minimum bid and what happens if nobody meets it

A tax sale has a floor. Under section 33.50, the property may not be sold for less than the lesser of two figures: the market value stated in the judgment, or the aggregate amount of the judgments against the property. Before the sale, section 34.01 has the officer calculate the total due: the taxes, penalties and interest, any other amount awarded by the judgment, the court costs and the costs of the sale. Sale costs include advertising, an auctioneer's commission and fees, and the expected fee for recording the deed. The officer may rely on a certified statement from the tax collector for the figures as at the sale date.

Two worked examples, with assumed figures, show how the formula behaves. A house with an adjudged value of US$150,000 and judgments totalling US$22,000 opens at US$22,000, because the debt is the smaller number. A vacant lot with an adjudged value of US$15,000 and the same US$22,000 of judgments opens at US$15,000, because the value is the smaller number. In the second case the debt cannot be covered in full by the minimum bid.

If no bid reaches the minimum, the property is not left unsold. The officer bids it off to the taxing unit that asked for the sale, at the lesser of the same two figures. Section 34.01 says the unit takes title for itself and for the other taxing units in the judgment, subject to the owner's right of redemption, and pays nothing until the property is redeemed or resold. This is the property covered in the last section of this guide; the statute's own term is "bid off".

What a bidder has to show: registration and the tax statement

Texas will not hand a tax deed to someone who is behind on property taxes in the same county. Two sections carry that rule, and which one applies depends on the county.

Section 34.011 applies only where the commissioners court has adopted it by order. In those counties a person must register with the county assessor-collector before bidding. Registration can require identification, written proof of authority when the person bids for someone else, and, at least once a year, a signed statement that the bidder owes no delinquent property taxes. Only a person holding a registration statement issued before the sale begins may bid. The section states no fee.

Section 34.015 works at the other end of the sale, at the deed. It applies in counties with a population of 250,000 or more that have not adopted section 34.011, and in counties under 250,000 whose commissioners court has adopted section 34.015 itself by order. There, the officer may deliver a deed only to the successful bidder, and only if that person shows an unexpired written statement from the county assessor-collector. The statement confirms that the person owes no delinquent taxes to the county and that no delinquent taxes are known or reported as owed to any school district or municipality in the county.

The details are short and exact:

• The request for the statement is sworn and signed by the person asking for it and identifies the property.
• The assessor-collector may charge a fee of no more than US$10 for each statement.
• A statement expires on the 90th day after it is issued.
• The deed names the successful bidder as grantee and recites that the statement was shown; a deed with that recital is conclusively presumed to comply.
• If the successful bidder has not shown an unexpired statement within six months of the sale, the officer sends the return to the assessor-collector, who files it with the county clerk.
• A knowing violation of the section is a Class B misdemeanor.

The deed and the title it carries

After the sale, section 34.01 has the officer prepare a deed to the purchaser, to a person the purchaser names, or to the taxing unit the property was bid off to. The officer files it for recording as soon as practicable, or hands it to the taxing unit to file, and the county clerk records it and returns it to the grantee. In counties where section 34.015 applies, the grantee is the successful bidder.

The statute describes what the deed conveys in strong words: it vests "good and perfect title" in the purchaser to the interest the defendant owned, including the right to use and possession. That phrase has limits written into the same subsection. The title is subject to:

• the former owner's right of redemption;
• a restrictive covenant running with the land that was recorded before 1 January of the year the tax lien arose, and a recorded lien arising under such a covenant that the judgment did not extinguish;
• each valid easement of record on the date of the sale that was recorded before 1 January of the year the tax lien arose.

The interest sold is the defendant's interest, so who was sued and served in the tax suit matters to what the bidder receives. A sale to a purchaser other than a taxing unit extinguishes the liens securing the taxes, penalties and interest included in the judgment, according to section 34.01. It does not wipe out anyone's personal liability for amounts the proceeds did not cover, and, as section 33.52 makes clear, taxes that fell delinquent after the judgment were never in it.

Challenges are narrow and time-limited. The deed may be impeached only for fraud. Under section 34.08, a person who attacks the validity of a tax sale must first deposit in the court registry the delinquent taxes, penalties, interest and costs, or file an affidavit of inability to pay. Section 33.54 requires an action relating to the title to begin before the first anniversary of the date the deed is filed for record. The period is two years where the property was the owner's residence homestead, or land appraised under subchapter C or D of chapter 23 of the Tax Code, when the tax suit was filed. A person who was not served in the suit and who went on paying taxes on the property is not barred by those periods.

Redemption: two years or 180 days, at a price

The purchaser's title stays conditional for a period that depends on what the property was. Section 34.21 gives the owner of a residence homestead, of land designated for agricultural use or of a mineral interest until the second anniversary of the date the purchaser's deed is filed for record. The owner of any other property has until the 180th day after that date.

The price has four parts: the amount the purchaser bid, the fee for recording the deed, the taxes, penalties, interest and costs the purchaser has paid on the property, and the premium, calculated on the aggregate of the first three. "Costs" has a statutory meaning. It covers reasonable amounts spent on maintaining the property, such as insurance, repairs required by law, the discharge of certain liens, owners' association dues under a recorded covenant and certain impact fees. The owner may ask in writing for an itemised list, which must be delivered no later than the 10th day after the request is received, and only itemised amounts count.

A worked example, with assumed figures: a bidder pays US$60,000 at the sale, US$40 to record the deed, US$2,400 in later taxes and US$1,560 in itemised insurance and repairs. The aggregate is US$64,000.

The first-year premium is US$16,000 and the second-year premium US$32,000. Had the same property been a rental house or a commercial lot, the owner would have had 180 days, and the premium could not have exceeded 25 per cent, so the ceiling would have been US$80,000.

Several rules govern the mechanics. Section 34.22 lets a person redeem who held title or was in possession, personally or through a tenant, when the suit was filed or when the property was sold, and a defect in the chain of title does not defeat the offer. Where the owner cannot find the purchaser, the purchaser does not live in the county, the two cannot agree on the amount, or the purchaser refuses to give a quitclaim deed, section 34.21 lets the owner swear an affidavit to that effect and pay the county assessor-collector instead. The assessor-collector issues a signed receipt witnessed by two people; once recorded, it is notice that the property has been redeemed, and the money is paid over to the purchaser on demand.

Two limits protect each side. The right of redemption does not give the former owner possession or rents while it runs. And it cannot be sold: section 34.21 says the right may not be transferred and that an instrument claiming to transfer it is void.

For the bidder the deed is good title with a clock on it; for the former owner the same clock is the last way back.

Excess proceeds: the money left with the clerk

Sale proceeds are paid out in a fixed order under section 34.02, each level in full before the next: the cost of advertising the sale; the fees of an attorney ad litem ordered by the judgment; the original court costs; the officer's fees and commissions; certain expenses awarded to a taxing unit for identifying parties and describing the property; the taxes, penalties, interest and attorney's fees due under the judgment; and any other amount awarded to a taxing unit. If the money runs short at one level, those at that level share in proportion. Whatever is left goes to the clerk of the court that issued the order of sale.

That remainder is the former owner's first concern after the sale. Under section 34.03, when the excess is more than US$25, the clerk sends the former owner a notice by certified mail before the 31st day after receiving the money. The notice states the amount, explains the right to claim it and includes the text of sections 34.03 and 34.04. The clerk keeps the money for two years after the date of the sale. If nobody establishes a claim in that time, it is distributed to the taxing units in proportion to what each was owed.

A claim is made by petition to the court, filed before the second anniversary of the sale and served on the parties no later than the 20th day before the hearing. The former owner does not stand first in line. Section 34.04 ranks the claims: a purchaser whose sale was voided; taxing units, for taxes that fell due after the judgment; other lienholders, in their legal order; taxing units, for judgment amounts the sale did not cover; and only then the former owner, a relative within the third degree, or a person who took the interest by will or inheritance. No interest or costs are allowed on the claim.

The section also regulates those who offer to collect the money for a former owner. An assignment of the claim may be taken only on or after the 36th day after the money is deposited, must be in writing, and must pay the owner at least 80 per cent of the claim. A court may order payment to an assignee of no more than 125 per cent of what the assignee paid. An attorney's fee for obtaining excess proceeds may not exceed 25 per cent of the amount obtained or US$1,000, whichever is less, and a person who is not an attorney may not charge a fee.

A worked example, with assumed figures: a property sells for US$90,000, the seven levels of section 34.02 absorb US$52,000, and US$38,000 reaches the clerk. An attorney's fee is capped at US$1,000, since 25 per cent would be US$9,500. An assignee must pay the owner at least US$30,400, which is 80 per cent, and a court could order no more than 125 per cent of that payment to the assignee, which is US$38,000.

Property bid off to a taxing unit and its resale

Property bid off to a taxing unit follows section 34.05. The unit may resell it at any time, by public or private sale. A private sale may not be for less than the lesser of the market value in the judgment or the total of the judgments, unless every taxing unit entitled to the proceeds consents. A public resale is held by the sheriff or a constable at the unit's request, and may be for any amount. If the unit has not sold within six months after the redemption period ends, any other taxing unit entitled to proceeds may ask for that sale.

The dates matter to a buyer at a resale. The former owner's redemption right survives the resale, and its period began when the taxing unit's deed was filed for record, not when the resale took place. The resale deed conveys the taxing units' interest subject to whatever redemption time remains. Under section 34.21, an owner redeeming from a resale purchaser pays that purchaser's outlay with the same premium. Section 34.23 adds that, outside the 180-day category, property cannot be redeemed from the taxing unit itself once it has been resold. An action attacking a resale may not be started more than one year after it.

For the former owner, a redemption made while the taxing unit still holds the property costs the lesser of the judgment amount or the adjudged market value, plus the deed filing fee and the unit's costs, which for a taxing unit include personnel and overhead for maintaining and reselling the property.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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