You may have been told by a friend or come across an advertisement for a property for sale significantly under market value by the municipality. You learn that the property is under a tax sale and you want to bid on it, but like a well-informed investor, you want to learn what you are getting yourself into exactly.
What is a “Tax Sale”?
A tax sale is a sale transaction available to municipalities to recoup significant property tax arrears. Under the Municipal Tax Sales Act, a municipality may put a property for sale whereby the owner has not paid property taxes for two years or more. Prior to the sale of the property, a Certificate is registered on title of the property notifying all parties of the tax arrears. Following one year from the date of the registration of the Certificate and no extension agreement with the owner, the municipality is authorized to advertise the property for sale whereby the highest bidder will be conveyed the property on closing by a tax deed.
Risk and Considerations
You may have heard the idiom “if it’s too good to be true”, well that applies perfectly for tax sales. There are many risks that one must consider before placing a bid for a property under tax sale.
Firstly, you are not allowed to visit the property under a tax sale prior to the transfer of ownership as it is still owned by the previous owner. You purchase the property “as-is, where is”, which means that there are no warranties provided by the municipality with respect to the condition of the property. Furthermore, the municipality does not promise to provide vacant possession. In the event that the current owners still reside in the property following the transfer of ownership, it is your responsibility to vacate them which may take a significant amount of time and expense.
Another concern one must consider before placing a bid on a tax sale property is title defects. While a tax deed will erase almost all previous encumbrances registered on title, Crown liens registered on title will remain as such and will be the responsibility of the new owner. Crown liens are liens held in favour of the Government of Ontario or the Government of Canada directly or through one of their agencies. Some examples of Crown liens are a mortgage in favour of Business Development Bank of Canada or a lien in favour of Canada Revenue Agency.
Recommendations
Before placing a bid on a tax sale, there are some steps you can take to minimize the risks. Firstly, drive by the property and view the condition of the property from the outside. While entering the boundaries of the property is prohibited before the registration of the tax deed, you are free to drive by the property and inspect it from afar.
With respect to title concerns, we strongly recommend that you consult with a real estate lawyer who can complete a title search of the property and provide a title summary of the registered encumbrances on title and their impact to a prospective purchaser.
More information? We’re here to help – realestate@wardlegal.ca This WARDS LAWYERS PC publication is for general information only. It is not legal advice, nor is it intended to be. Specific or more information may be necessary before advice could be provided for your particular circumstances.