What Is the Difference Between a County Tax Auction & a Bank Auction for Real Estate?

Homeowners who default on mortgage payments can have their properties foreclosed and sold at a bank auction. A home also can be foreclosed by a government entity when homeowners are delinquent on their property taxes. While lender foreclosures and auctions return money to the lender, tax foreclosures and auctions benefit only the foreclosing government.

Auction Purposes

Bank foreclosure and delinquent property tax foreclosure generally share the same outcome, which is foreclosure and repossession of property. However, auctions or sales following a foreclosure differ based on who's conducting them. Bank foreclosure auctions usually are scheduled through auctioneer companies and designed to net foreclosing lenders as much money as possible. Property tax auctions can be conducted on courthouse steps and are designed to net foreclosing government units what they're owed for back taxes.

County Tax Auctions

Once a county or other local government unit forecloses a property for delinquent taxes, that property is scheduled for eventual auction. Governments tend to hold property tax auctions on a regular schedule throughout the year. Once tax-foreclosed properties are listed for auction, they're frequently bid on at oral public auctions hosted by the foreclosing governments. Those foreclosing governments want to recover only what they're owed, and there may or may not be money left over to distribute to any other lien holders.

Lender Auctions

When a lender forecloses a property and auctions it, the intent is to maximize the property's auction sale price. In a perfect world, a lender foreclosing a property would auction it and recover at least what it's owed. However, foreclosing lenders might not recover what they're owed when selling a foreclosed property at auction. But foreclosing lenders can accept or reject bids on their foreclosed properties in accordance with their financial needs.

Lien Survival

Another difference between lender foreclosure and government property tax foreclosure has to do with property lien survival. When a lender forecloses a property, it might pay off or otherwise eliminate any liens on that property's title. However, lenders are free to sell their foreclosed properties "as is" and with liens still on the titles. Property tax liens, though, are superior to all other liens, and foreclosure for property taxes frequently wipes away non-tax-related junior liens, including any mortgages.

Beware Property Liens

Foreclosure investors intending to bid on properties usually pay title companies to search those properties' titles for liens. It's important to search a foreclosed property's title for liens because of the deeds given with those properties. Although lenders might give warranty deeds guaranteeing a foreclosed property's title, foreclosing governments frequently issue quit claim deeds. Quit claim deeds don't guarantee title, meaning any other tax or surviving title liens usually become the responsibility of the foreclosed property's new owner.

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