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What is a “Tax Sale”?

What is a “Tax Sale”?

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Posted April 9, 2024

A tax sale is a sale process used by a municipality, in order to recover property tax arrears that have remained outstanding for at least 2 years. The municipality will first register a Certificate on title to the property as confirmation of property tax arrears by the owner for two (2) years prior to the current year. If, at the end of the one-year period following the registration of the tax arrears certificate, (a) the cancellation price remains unpaid; and (b) there is no subsisting extension agreement, the municipality will then attempt to recover the unpaid property taxes by advertising the property for sale by auction or tender. The successful bidder will assume ownership through a tax deed.

While multiple types of property (cottages, farmland, homes, commercial buildings, etc.) may be obtained this way and well below “fair market value”, there are considerations you should consider prior to bidding on a “tax sale” property, including but not limited to, the following:

No “Guarantees”: Ownership and Vacant Possession

Once a tax deed is registered in the land registration system, the former owner cannot redeem the property. However, the owner can redeem a property at any time prior to a tax deed being registered. The former owner could cancel the tax arrears certificate by paying to the municipality the cancellation price as of the date the payment is tendered and after the expiry of the one-year period. Therefore, in the absence of an Agreement of Purchase and Sale (“APS”), the property is not bound to be transferred in a contract, leaving no remedy for the bidder.

There is also no guarantee or certainty of vacant possession before or after the deed is registered. Therefore, you typically have no option to inspect and/or view the property and you may not be aware of who or what is at the property. You would assume the property “as-is” with no warranty as to the size or condition of the property. Typically, you would be responsible for removing any debris, junk, etc. left at the property and any associated repairs and expenses.

Title Defects and “Off-Title” Searches

There could be uncertainty as to the quality of the title to the property. Perhaps you intend to use the property differently than what the current owner used it for or what the current zoning allows. You could be unaware of whether the property complies with municipal setbacks, whether there were any renovations completed and whether they were done in accordance with municipal building/zoning regulations, and/or whether there are any easements or restrictive covenants registered on title, as a few examples.

While title documents are available for the general public to consider and review, a real estate lawyer could help you perform a search of title to the prospective property prior to the bid being submitted, to confirm if there are any title issues or restrictions; and could help you understand the availability of title insurance following a successful bid. A real estate lawyer could also help you perform off-title searches, such as outstanding work permits/inspections, and zoning compliance.

Costs of Ownership

In a typical real estate transaction, a lawyer helps you understand, at the outset, the anticipated costs associated with a purchase. In a tax sale, you as the successful bidder will be required to pay all applicable taxes, including Land Transfer Tax, HST (if applicable), and property tax arrears (if any). You would also be responsible for any water bill arrears, as they form a lien on a property.  While some individuals may be capable of managing these unexpected costs, others would appreciate having a lawyer determine if these additional expenses apply prior to placing a bid.

Other Considerations

You may want to finance the “purchase” of the property or refinance following the registration of the tax deed, through a lender. However, a prospective lender could have specific conditions for financing given that it is a tax sale, which you are not aware of. For example, some lenders could require other off-title searches or prohibit a “hobby farm” or rentals. In addition, there could be property insurance considerations. Your insurability of the property may be limited based on the status or use of the property.

In summary, there are property-related issues and additional costs that may arise when acquiring a property by tax sale, which could be problematic or overwhelming. Therefore, whether you are planning to bid on a property solely or with co-owners, you should consult a real estate lawyer to consider the legal consequences of owning a “tax sale” property beyond the bidding process.

This blog post was written by Brandon Doughty, a member of the Real Estate and Wills and Estates teams.  He can be reached at 613-369-0364 or at brandon.doughty@mannlawyers.com.

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Brandon Doughty

Brandon Doughty

I practice in real estate law and in estate planning matters and enjoy working with clients at different stages of their lives. I am happy to assist first-time home buyers, persons who are refinancing for new opportunities and those seeking advice in their will or power of attorney documents as a few examples. Before joining Mann Lawyers, I articled and briefly practiced at a firm in the Ottawa Valley with offices in Deep River and Pembroke. I assisted clients in the County of Renfrew in real estate law, wills and estates and corporate law. I graduated from the University of Windsor, Faculty of Law. While at Windsor, I had the opportunity to complete an externship with the Advocacy Centre for the Elderly in Toronto to assist vulnerable older adults across Ontario. I also competed in the Canadian National Negotiation Competition. Prior to law school, I graduated from Ontario Tech University... Read More

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