The Legal Risks of Tax-Delinquent Foreclosure Sales

By: Amy L. Rickers

Aug 29, 2011

Although acquiring property through a tax-delinquent foreclosure sale, also known as a “tax sale,” can be profitable, investors should weigh both the environmental and legal risks against the financial rewards prior to inking a deal. The tax sale process can limit the investor’s ability to conduct environmental due diligence and expose the investor to risk.

The traditional environmental due diligence process is outlined in the Association for Testing Materials 1527-05. This process becomes more challenging when an investor acquires property through the tax sale. A taxing authority is often hesitant to step into the chain-of-title of a property because of the real or perceived environmental risk. Therefore, obtaining permission to access a property to conduct an environmental assessment is difficult.

The inability to conduct the environmental assessment increases the potential risk for the investor and decreases the interest in purchasing the property. Consequently, ownership remains with the original property owner, no revenue is generated for taxing authorities, and the surrounding community suffers from a decaying property. A significant legal issue involves who can grant access to a property trapped within the tax delinquent foreclosure process.

Risks associated with soil and groundwater impacts from on-site and/or off-site sources are manageable with assistance from legal counsel and an environmental consultant. The Texas Property Tax Code can provide a means for access to the property, enabling an environmental team of consultants and attorneys to aide in the necessary assessments.