After the Tax Sale: Does a tax-foreclosed property have a clear title or not?

I’m hearing conflicting information about what happens to a the title of a property after it goes through a tax sale.

I’ve heard some people say that all owners, mortgage companies, lien holders or otherwise will lose their claims to a property after it goes through tax foreclosure.

On the other hand, when I talk with my title company, it sounds like you can’t get title insurance a property that has gone through tax foreclosure.

Why not? If a tax sale clears out a property’s chain of title, why wouldn’t I be able to get title insurance on it? Wouldn’t that be the safest bet in the world for a title insurance company?

@mattpayne that’s funny. Someone emailed me recently with a very similar question. Here’s what I told them…

Note: I’m not an attorney or title expert, but this is how I understand the issue after several conversations with various title folks over the years. If anyone reads and wants to correct me, please do chime in.

A property is (in theory) free and clear when you buy it at a tax sale because a tax sale is supposed to wipe out any previous owners or lienholders’ position in the property.

However, in order to do this properly, the county is supposed to notify all existing lienholders and owners about the upcoming tax sale before it happens, so they can step in and resolve the issue before it’s too late.

If one of these parties steps up in the future and claims that they were never notified, then they could technically still claim an interest in the property, because it was taken from them without proper warning.

Whether the county did the right thing or not, it’s hard for them to “prove” that they sent the notification at the appropriate time AND that the lienholder actually received it. As such, it turns into one of those things that, even though it should technically clear the title, it actually clouds the title, because a title insurance company is never going to insure title when there could be open issues where the appropriate parties never got notified.

This is why people often plan on going through a quiet title action after a tax sale, because in the eyes of a title insurance company, even if there is no proof of a clouded title, it’s still a clouded title until a court puts this final nail in the coffin and clears it all out.