Underwriting Q & A | Is there a redemption period when a Tax Lien Deed of Trust is foreclosed in Texas?

Q: Is there a redemption period when a Tax Lien Deed of Trust is foreclosed in Texas?

A: Yes, Section 32.06 of the Texas Tax Code delineates the requirements for a person/entity to pay the ad valorem taxes of another person and take a transfer of the tax lien, subject to a one year wait on any foreclosure proceeding and subject to the redemption rights in the foreclosed property owner as follows:

(k)  Beginning on the date the foreclosure deed is recorded, the person whose property is sold as provided by Subsection (c) or the mortgage servicer of a prior recorded lien against the property is entitled to redeem the foreclosed property from the purchaser or the purchaser’s successor by paying the purchaser or successor:

(1)  125 percent of the purchase price during the first year of the redemption period or 150 percent of the purchase price during the second year of the redemption period with cash or cash equivalent funds; and

(2)  the amount reasonably spent by the purchaser in connection with the property as costs within the meaning of Section 34.21(g) and the legal judgment rate of return on that amount.

(k-1)  The right of redemption provided by Subsection (k) may be exercised on or before the second anniversary of the date on which the purchaser’s deed is filed of record if the property sold was the residence homestead of the owner, was land designated for agricultural use, or was a mineral interest.  For any other property, the right of redemption must be exercised not later than the 180th day after the date on which the purchaser’s deed is filed of record.  If a person redeems the property as provided by Subsection (k) and this subsection, the purchaser at the tax sale or the purchaser’s successor shall deliver a deed without warranty to the property to the person redeeming the property.  If the person who owned the property at the time of foreclosure redeems the property, all liens existing on the property at the time of the tax sale remain in effect to the extent not paid from the sale proceeds.

There may be other requirements and/or exceptions for insuring following a tax lien deed of trust foreclosure and agents should consult with the underwriter on a case by case basis.