Click to download the complete white paper from Donald Dinan of Goetzfitpatrick on the Washington D.C. tax sale process.
Attorney Donald Dinan, a graduate of the University of Pennsylvania’s Wharton School, has been involved in tax law and tax sales since the mid-1990s. He and Tax Sales Resources CEO Brian Seidensticker recently sat down for a podcast interview where Dinan explained all about what makes takes sales in the nation’s capital unique.
An Overview of D.C. Tax Sales
In D.C., tax sales weren’t actually offered to private investors until 2001, and in 2014 the statutes covering tax sales were significantly updated, with the goal of providing more financial and housing protections for homeowners and the elderly. D.C. is a tax lien jurisdiction, and the lien sales are conducted once a year, usually in July. The auctions are not held online but are conducted in person with bidders and an auctioneer. Unsold liens go back to D.C. and are usually offered again during the following year’s sale, unless they are set aside for a public-use property project − such as a city park or an affordable housing unit.
The Sales Process
After giving proper notice to the city, sales are conducted by the Office of the Tax Revenue (OTR). Before participating in the bid sale you must make a deposit, based on the estimated purchase price, equal to 20% of that price. If you don’t settle up and pay what you owe within five days of the auction, you lose your deposit. Tax sales follow a premium bid up process, so the starting bid is the amount owed to the District, and then the price is bid up from there, with the highest bid winning. The winning bidder earns an 18% interest rate on the delinquent amount. But they don’t earn any interest on the premium portion of the bid, which may be significant. There is a one-year redemption period, and if the property is redeemed the city will refund to the winning bidder the overbid surplus.
Other Applicable Rules and Procedures
A tax lien is attached to a property as soon as it becomes delinquent. Any property that is deemed residential and owner occupied, and has less than $2,500 in delinquent taxes, is exempt from a tax sale. Tax liens have priority over all other liens with the exception of federal government liens – which can be common in D.C. Those subsequent liens may also be included in the delinquent amount at sale, and those that are purchased earn the full 18% percent interest
About 98% of Parcels Redeem
Investors should be aware that very few properties make it all the way to the tax deed and foreclosure stage. In fact, all but about two percent of delinquent parcels successfully redeem, so most investors are participating for the interest earned on tax liens, not with the goal of securing a tax deed. Also, if you do ultimately become the tax deed holder, the overbid surplus is not returned to you. It is generally calculated by investors as part of the purchase price.
The Foreclosure Process
A notice to foreclosure must be filed before the one year redemption period expires. But you must wait 6-months before you can start the foreclosure process, although you can start the notification process after four months have passed. Notifications have to be completed 90 days prior to filing for foreclosure, and if you miss that deadline you forfeit your certificate. Foreclosure is initiated by filing a complaint with the court and giving notice to all lien holders and others with an interest in the property. But properties may be redeemed right up until the moment the court signs off on the foreclosure order.
The Bottom Line
While most of the statutes and procedures are rather clear-cut, there are some, especially those regarding notifications and foreclosures, which are more complex and unique to Washington, D.C. To learn more, read Donald Dinan’s white paper all about the nuances of the D.C. tax sale process. Be sure to also listen to the entire in-depth podcast interview between Dinan and Brian Seidensticker, which you can access it by clicking here. You can also find more information about D.C. from Charles Gormly in his interview about Maryland and the District of Columbia.