Finding a bargain at tax-deed auction is a rare occurrence

Finding a good deal on a home at a tax-deed sale can be difficult, but it's not impossible.

Q. A real estate investor in our area has recently been running advertisements for weekend seminars, claiming that some really nice homes can be purchased for $500 or even less at tax-deed sales. Is this true? How do tax-deed sales work?

A. It's true that great bargains sometimes can be found at tax-deed sales, but they're usually few and far between.

Tax-deed sales are usually conducted by a local agency, often the county's tax assessor or tax collector. The agency typically acquires the property after going to court and getting a legal judgment against the owner for failure to pay property taxes.

The property is then auctioned off, with the minimum bid set by the local government for an amount that's equal to the back taxes that are owed and the legal costs that were incurred - a figure that is often below a few thousand dollars.

Buying a nice home for a pittance at a tax-deed auction would be terrific, but inexperienced bidders rarely have such good fortune. That's because tax liens usually have priority over all other debts, including the mortgage that the bank first issued to the tax-delinquent owner.

For example, if a homeowner still owes $100,000 to the lender and $2,500 in back taxes, there's little chance that the bank will allow the property be sold at a tax-deed auction for a mere $2,500. Instead, a bank representative will be ready to immediately bid $102,500 in order to reclaim the property, and perhaps much more if values in the area have climbed.

Though finding a bargain at tax-deed sales isn't easy, I have known a few investors who have done it. Among the most promising properties, they say, are homes with a mortgage that was paid off years ago, because no lender will be involved in the upcoming bidding.

If you're serious about pursuing a tax-deed purchase, contact your local tax-collector or assessor to obtain the dates that the auctions will be held and the bidding process that is involved.

Unlike most foreclosure sales instituted by banks, many county and state agencies allow potential bidders at a tax-deed auction to first inspect the house for damage. That's an important opportunity that you shouldn't miss, in part because an inspection may help you to avoid paying too much for a home that needs major repairs.

Personally visiting the property also can give you clues about the neighborhood itself, to help you determine whether home prices in the area will rise or fall.

Q. We have a small house, with a "box" air-conditioning unit that's installed in the window of our living room. Our electricity bills have nearly doubled in the past two months because we are running the air conditioner every day, but a friend says that we could save money by putting our TV on top of the box because the fan in the TV will cool the air-conditioner below and not make it work so hard. Is this correct?

A. No. Putting your television atop your air-conditioning unit probably will just increase your monthly electric bill because your air conditioner would then have to cool both you and your TV.

It's also wise to keep TVs, lamps and other appliances away from an air-conditioner's thermostat because the heat they generate can "fool" the device into thinking that it's hotter than it really is - which, in turn, can trigger the unit to turn on prematurely and also make it run longer than needed.

Q. I recently converted my detached garage into a small guesthouse and would now like to rent it out so I can supplement my income. I am a single woman who currently lives alone, and would feel more secure if a woman rented the place rather than a man. Can I put a statement in my advertisement for the rental that says something like "Women Only" or "Only Women Need Apply"?

A. You can, but you could soon find yourself the target of a lawsuit - and maybe even a jail sentence - for violating the federal Fair Housing Act. That's because federal law prohibits a landlord from discriminating against a rental applicant or existing tenant based on several factors, including gender.

Martin Eichner, a director of the nonprofit housing-mediation group Project Sentinel (housing.org), says landlords generally can consider an applicant's gender in only three types of situations. The first is if the landlord is seeking a tenant to rent out a single room in the landlord's own home; the second is if the tenant would share a kitchen or other living space with the landlord; and the third is if the applicant is seeking to rent space in a single-sex dormitory at a college or other educational institution.

Your converted garage doesn't qualify for any of these three exceptions, so you'll have to treat all applicants equally and base your decision on other factors - such as their credit score, financial stability and past rental history.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.

© 2010, Cowles Syndicate Inc.