The Annual Washington DC Tax Sale is a public auction of properties required by statute. The auction consists of properties for which real property taxes have not been paid for one year or more. The property tax lien sale is the District’s vehicle for recovering tax revenue needed to fund vital city services.
To the surprise of many (including some investors who actually participate in the auction), a winning bid at a DC Tax Auction does not automatically convey title of the property to a purchaser. There are legal procedures and processes the bidder must complete before becoming owner of an auctioned property. The current owner may pay the taxes owed and recover ownership of the property up until the time a deed is issued to the bidder/purchaser.
In the District of Columbia, approximately 95% of properties to be auctioned are redeemed by owners after the auction. Since this is the case, many investors take part in DC Tax Sales not for acquisition of the property, but for the high interest rate paid on the Certificate of Sale-currently 18% per annum.
The DC Property Tax Lien Sale consists of all types of properties: commercial, residential, vacant and abandoned properties. The following is a general overview of the process.
DC Tax Lien Step 1: Final Notice of Delinquency.
The first step in the Tax Sale process is the Final Notice of Delinquency. This notice is mailed to owners of properties that may be sold at the Tax Sale. In order to prevent the property from being advertised and/or sold, the delinquent owner must pay the bill in full, either by certified check or cash.
DC Tax Lien Step 2: Newspaper Advertisement.
By law, properties to be sold at the Tax Sale must be listed in two local newspapers. The Washington Post and The Washington Times typical carry the DC Property Tax Sale advertisements. Not every property you see listed in the newspaper will be auctioned. As property taxes are satisfied, properties are deleted from the Tax Sale list.
DC Tax Lien Step 3: Property Inspection.
It is imperative that anyone interested in purchasing a property at the Tax Sale inspect the property prior to the auction date. It is equally important to research other liabilities that may be on the property. Examples of these liabilities are water, gas and/or electric bills.
DC Tax Lien Step 4: Tax Sale Registration.
Buyers must register to participate in the DC Tax Sale. At the time of registration, if you are an individual or business entity that owes taxes to the District of Columbia, you cannot participate . Buyers also must pay upon registration a deposit equal to 20% of the amount he or she intends to bid, or $100, whichever is higher.
DC Tax Lien Step 5: The Auction.
A Tax Sales Fee of $150.00 is added to the past due tax amount at the time of the auction. Starting bid will be at the amount of the delinquent taxes plus the tax sale fee. The winning bid amount is the last figure called by the auctioneer. The successful bidder has five business days from the last day of the tax sale to pay the bid amount in full.
DC Tax Lien Step 6: Waiting Period.
The winning bidder (now Purchaser) must wait six months before beginning court action to obtain the property. On the fourth month of the waiting period, the purchaser may begin to conduct a title search of the property and research other liens.
DC Tax Lien Step 7: Foreclosure Action.
Once the title search is completed and the six month period has passed, the purchaser may file an action with the District of Columbia Superior Court to foreclose on the owner’s right of redemption. Although this portion of the process may be done by the purchaser, it is highly recommended that obtain the services on an attorney.
Owners Right of Redemption.
The property owner may redeem his/her property at any time prior to the issuance of a court order that forecloses their right of redemption. If the owner redeems during or after the six-month waiting period, but before a foreclosure action is filed, the owner must pay all assessments, real property taxes, fees and cost assessed against the property and pre-complaint expenses incurred by the Tax Sale purchaser. The pre-complaint expenses have been set by statute.
If redemption occurs after the six month waiting period and after the foreclosure action is filed, the owner must pay all taxes, assessments, fees, and costs assessed against the property-owner; the pre-complaint expenses incurred by the Tax Sale purchaser; and legal costs. The DC Tax Sale purchaser will be reimbursed the purchase price plus interest paid at 1 1/2% per month upon the owner redemption. Note that interest is only paid on the amount of the purchase price, which represents the delinquent tax. Interest is not paid on any surplus amounts.
It is a court order that grants a purchaser the right to be issued a tax deed. When the court order is issued, the purchaser must pay all taxes, assessments, fees and costs (including penalties and interest) assessed against the property.
The payment of Real Property taxes is the responsibility of every property owner in the District of Columbia. When property taxes become delinquent, however, the loss of revenue threatens the city’s infrastructure. It is the revenue from these taxes that supports city programs and facilities, including schools, libraries, police, fire and other emergency systems, and street cleaning and repair.
No ancillary profit is made by the city government from the auction of private properties. There is greater benefit for all when owners pay tax bills timely and maintain stable and long-term property ownership.