Real Estate Law

Real Estate Overview
Probate
Mississippi Tax Deeds



Real Estate Overview

Real estate transactions are governed by a wide body of federal statutes and state statutory and common law. The requirements established by state law differ significantly from one state to the next.

Real estate brokers are employed as the agent of the seller in order to obtain a buyer for their property. The contract between the broker and seller is called a listing agreement. Real estate brokers and salespersons are licensed and regulated by local state laws. Professional organizations may also provide further guidelines. The Federal Fair Housing Act prohibits discrimination in real estate transactions on account of race, color, religion, sex, or national origin. Real estate brokers are specifically prohibited from discriminating by the act.

The agreement to sell between a buyer and seller of real estate is governed by the general principles of contract law. The Statute of Frauds requires that contracts for real property be in writing. A title insurance company is often employed to investigate whether the title to the property is marketable. Title insurance companies also insure the buyer against losses caused by the title being invalid. In order to pass title, a deed with a proper description of the land must be executed and delivered. Some states require that the deed be officially recorded to establish ownership of the property and/or provide notice of its transfer to subsequent purchasers. The most common method of financing real estate transactions is through a mortgage.

Common Forms Of Property Ownership

There are a variety of forms of ownership of property. The more common forms of ownership include:

  • Joint Tenancy: Property owned by two or more people at the same time in equal shares. Each joint tenant has an undivided right to possess the whole property and a proportionate right of equal ownership interest. When one joint tenant dies, his/her interest automatically vests in the surviving joint tenant(s) by operation of law. Not all the states allow this form of property ownership.
  • Tenancy in the Entirety: Some states have a special form of joint tenancy called "Tenancy in the Entirety". This is when the joint tenants are husband and wife, with each owning one-half. Neither spouse can sell the property without the consent of t he other.
  • Sole Ownership: Property owned entirely by one person.
  • Tenants in Common: Property owned by two or more persons at the same time. The proportionate interests and right to possess and enjoy the property between the tenants in common do not have to be equal. Upon death, the decedent' s interest passes to his/her heirs named in the will who then become new tenants in common with the surviving tenants in common.
  • Community Property: Some states recognize community property, a special form of joint tenancy between husband and wife, each owning one-half. Upon death, the decedent's interest passes in a manner similar to tenants in common.

What Is A Mortgage?

A mortgage is an interest in land which provides security for the payment of a debt. Some states apply the common law rule that the conveyance of real property is void and is defeasible should the "owner" fail to make the payment. Many states recognize a mortgage as a mere lien (without conveying an interest in the land other than security or lien) and some states have adopted hybrid approaches.

The types of mortgages that are typically available to prospective homebuyers are:

  • Conventional: With a conventional mortgage, the lender obtains a lien or defeasible legal title to the property in return for the payment of the amount of money lent.
  • FHA Mortgage: An FHA mortgage is a conventional mortgage which is insured in whole or in part by the Federal Housing Authority.
  • Purchase Money Mortgage: A purchase money mortgage is one that is given to secure the loan which is used to buy the property. A first (senior) mortgage on the property has priority over any second or subsequent (junior) mortgages on the property.
  • Adjustable Rate Mortgage: An adjustable rate mortgage (often called an "ARM") offers a fixed initial interest rate and a fixed initial monthly payment. After the initial period is over, the rate and term of the mortgage can be modified at predetermined times under the agreement to reflect the current market mortgage rates.

There are several other mortgage options, such as balloon mortgages, shared-equity mortgages, biweekly mortgages, reverse mortgages, and buy downs.

What Is Real Property?

Real property is defined as land and the things permanently attached to the land. Things that are permanently attached to the land also can be referred to as improvements, include homes, garages, and buildings. Substances that are beneath the land (such as gas, oil, minerals) are also considered permanently attached.

Why Should I Record My Title?

When you purchase real property, you will receive a written document (called "the deed") which transfers the ownership (title) of the property to you as the purchaser. The deed gives you formal title in exchange usually for a specified amount of money. The conveyance of real property is not complete until the deed is delivered to you or your authorized agent.

When you get the deed, you should record it with the county recorder in the county where the property is located. The purpose of recording the deed is to give "notice to the world" that you now have an ownership interest in that particular piece of real property.
 

Probate

Probate is the process that transfers legal title of property from the estate of the person who has died (the "decedent") to his or her proper beneficiaries. The term "probate" refers to a "proving" of the existence of a valid Will, or determining who the legal heirs are if there is no Will.

The probate process also provides for the collection of any taxes due by reason of the deceased's death or on the transfer of his or her property. Additionally, it provides a mechanism for payment of outstanding debts owed by the decedent.

Does All Property Have To Go Through Probate?

Real and personal property owned as a joint tenants passes to the surviving co-owners without going through probate.

Other types of benefits, such as life insurance or annuities payable directly to a named beneficiary bypass probate. Money from IRAs, Keoghs, and 401(k) accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as payable-on-death account (POD for short) or an "in trust for" account with a named beneficiary also pass to that beneficiary without probate.

If a Living Trust holds legal title to property, that also passes to the beneficiaries without probate. (The Trust is a legal entity which survives you after your death.)

How Are Estate Creditors Handled?

As part of the probate process, creditors are notified of the death. They must file a claim for the amounts due. If the claim is approved by the executor, the bill is paid out of the estate. If the claim is rejected, creditors must sue for payment.

If there are insufficient funds to pay debts, states have statutes of one kind or another establishing who gets paid first. Executors most likely will commence selling property to pay off approved creditor claims. Any claims remaining are pro-rated.

How Are Taxes Handled In Probate?

For federal and state tax purposes, death triggers two events:

  1. It ends the decedent's last tax year for purposes of filing an income tax return, and
  2. It establishes a new, separate entity for tax purposes, the "estate".

For Federal tax purposes, it may be necessary to complete and file one or more of the following, depending on the decedent's income, the size of the estate, and the income of the estate:

  1. Final Form 1040 Federal Income Tax return.
  2. Form 1041 Federal Fiduciary Income Tax returns for the estate.
  3. Form 709 Federal Gift Tax return(s).
  4. Form 706 Federal Estate Tax return.

For state purposes, an executor must file the appropriate state income tax return plus possible estate tax, inheritance tax and gift tax returns. In many states, gift, estate and inheritance taxes have been eliminated for most small and medium-sized estates. The requirements for filing and payment vary widely from state-to-state.

What If There Is No Will?

If a person dies without a Will the probate court appoints a Personal Representative frequently called an "Administrator" or "Administratix" to receive all claims against the estate, pay creditors, and then distribute all remaining property in accordance with the intestacy laws of the state.

The major difference between dying testate and dying intestate is that without a valid Will an intestate estate is distributed to beneficiaries in accordance with the distribution plan established by state law; a testate estate is distributed in accordance with the instructions provided by the decedent in his/her Will.

Where Is Probate Handled?

Probate usually occurs in the appropriate court in the State and County where the deceased permanently resided at the time of his or her death. Such courts go by different names in various states. In many states the court is simply called the Probate Court.

The probate court usually handles the distribution of all the personal property the deceased owned, as well as all of the real estate that the deceased owned that is located in that same state.

Who Is Responsible For Handling The Probate Process?

A "Personal Representative" (sometime also referred to as the "executor" or "executrix" if there is a Will, or the "administrator" or "administratix" if there is no Will) is appointed as part of the probate proceeding. This person has the responsibility for managing the estate through the proceeding, subject to the direction of the court and the probate rules and procedures.

Typically, the probate court has a considerable amount of control over the activities of the Personal Representative. Often the court will require that she or he obtain prior permission before certain actions may take place (e.g., the sale of property) The court will also typically require an accounting from the Personal Representative of all transactions.


Mississippi Tax Deeds

Mississippi real estate taxes are paid in arrears and become due in January of each year. They are considered delinquent if not paid prior to the first of February by the owner or a party having interest in the property. If, however, they are not paid, Mississippi law authorizes taxing authorities to sell the delinquent property tax obligations to the highest bidder at public auction.

At auction, the successful bidder receives a tax certificate (receipt) for the property. The certificate grants its holder a priority lien on the underlying property without the right of possession; however, if at anytime prior to the expiration of the redemption period, the original owner pays the delinquent tax obligation in full, including payment of taxes, interest, and penalties that are due, the clerk will issue a tax sale release that relinquishes all interest that the tax purchaser and/or government entity may have previously held in said property. At that point the taxing authority remits, where applicable, to the tax certificate purchaser, the purchaser’s original principal purchase price plus the statutory rate of interest. The tax certificate purchaser’s right to obtain a tax deed conveyance to the property is subject to the original owner, or parties in interest, redeeming the delinquent tax prior to the expiration of the redemption period.

So let’s review the process leading up to the issuance of a tax deed. After a tax lien/tax certificate is auctioned by a taxing authority to the highest bidder at a tax certificate auction, one of two things will happen: First and most likely, the tax lien or tax sale certificate will likely be redeemed before the expiration of the redemption period. The statutory period for redemption expires, at least in theory, two years from the date of the tax sale. However, a number of taxing authorities will allow redemption after that point. In the second less likely scenario, the property is not redeemed and the statutory redemption period expires. At that point, the tax purchaser will, upon request and payment of the statutory issuance fees and expenses, be issued a city or county tax deed, [in the event that both a city and county tax deed is issued on property unpaid property taxes for the same tax year, the general statutory interpretation is that county deed would take precedence over a city tax deed], depending on which taxing authority conducted the initial tax certificate auction. Expiration of the redemption period confers, at least in theory – but not in practice - the right of possession to the tax deed holder. Moreover, the statute, at least in theory, views the issuance of a tax deed as conclusive evidence of the purchaser’s rights in the property. From the time the redemption period expires, the purchaser has all the authority, rights and obligations of any other landowner, including the right to immediately possess the property. Nevertheless, in practice, great caution is urged to tax deed holders wishing to take possession of a parcel that is currently occupied or where other adverse claims by third parties exist. Thus, while in theory a holder of a valid tax deed can use any legal remedy to evict occupants as well as to protect and secure his or her legal rights and interest in and to the tax deed property; in practice, most courts look upon tax deeds with great disdain and may choose not to grant relief to the tax deed holder unless a tax title confirmation suit has been properly filed and successfully concluded by the tax deed holder.

In tax certificate research and acquisition the old adage that location, location, location is of importance, however, of equal and often greater importance is proper notice. With that in mind, always remember that proper notice is a fundamental right afforded by our legal system and is an important part of “due process.” Due process, as characterized by proper notice, may not be denied to anyone. Property owners of record, lien holders, creditors, heirs, mortgage holders and trustees, to name only a few, are called parties in interest. The statute demands that all parties be notified by publication, certified mail, and/or personal service by a representative of the sheriff. If parties in interest are not notified in strict accordance with state statutes, then one of two things may happen. First, a tax certificate buyer may find that upon requesting the issuance of a tax deed, the taxing authority may unilaterally refuse to issue said deed claiming notification problems and may instead simply refund the original tax certificate purchase amount, often without interest. The wholesale voiding of tax certificates happens more often than not. Unfortunately, a tax certificate purchaser faced with such a conundrum has little cost effective recourse against a taxing authority that did not afford proper notice. Yes, the law does state that you can go against their official bond; well, just try that and see how far you get. Those are clear instances of caveat emptor, “let the ‘tax’ buyer beware.” Just learn from those events, chalk them up to experience, and move on. Second, if the tax deed has already been issued and recorded, you may be forced to deal with a party in interest in an attempt to negotiate a re-conveyance of their interest back to them. If, however, you decide not to deal with them and choose instead to be greedy and hold out for some large settlement amount, you may very well find yourself defending yourself in costly and protracted lawsuit to set aside your tax deed interest.

Keep in mind that when dealing with tax certificate and tax deed matters involving statutory interpretation, negotiation or litigation, it’s imperative that you seek out experienced counsel with hands on experience in that area. As an attorney and former active tax purchaser, I can tell you with great certainty that chancery judges, as a matter of practice, look with great distaste when confronted with an individual’s loss of property through the issuance of a tax deed. Such courts most often tend to construe all statutes to the utmost advantage of the parties who have lost their property through delinquent taxes. My advice to you then would be, when faced with a potential challenge to one of your tax deeds, work through experienced counsel to diligently to craft a creative and mutually beneficial resolution to the matter. If at all possible, don’t let the issue escalate into a lawsuit.

In the event where a clear showing is made that a party in interest has been afforded proper statutory notice, that party, at least in principal, loses their ability to reclaim any interest in the tax deed property. If no other parties in interest exist, or if they too received proper notice, the tax deed holder may well be able to prevail in a suit to confirm title. Nevertheless, even if you can demonstrate that proper notice was given this does not bar a party in interest from filing a court action to set aside the tax deed or to filing a response to a suit to quite title, thus requiring you to launch a defense. If in fact you are taken to court, regardless of how good your notice is, your claim will be closely scrutinized by a chancery court judge. So don’t automatically think you have it in the bag. Regardless of how in the right you think you are, you could be faced with an expensive and uphill battle.

Let me once again make a personal observation. Rare is a tax deed that could withstand extreme legal scrutiny when challenged. Does this mean that the validity of all tax deeds will be questioned; no, not at all. Quite the contrary, my experience has been that the validity of tax deeds is challenged in only a small percentage of cases.

In summary, every prudent tax deed purchaser must remain mindful that all parties having a legal and/or equitable interest in a tax deed property, including but not limited to, property owners, mortgagees, lien holders, creditors, and heirs must be given proper statutory notice and may, at any time, initiate a cause of action to recover their interest. These parties are entitled to know that the property in which they hold an interest has not only been sold for taxes, but that a tax deed will be issued if the delinquent taxes are not redeemed before the expiration of the statutory redemption period.

Property inspections, where possible, and to the extent allowed by law, coupled with a title search conducted by a qualified attorney will help you garner the necessary information upon which to base further research and buying decisions. This type of fundamental due diligence is the key element to the tax deed research equation and should never be ignored. Based on the aforementioned you can probably see why it’s in your best interest to do all of your homework before purchasing a tax certificate or tax deed.

Successful tax deed buyers are those who, more often than not, properly research a tax certificates or tax deeds before buying. By properly researching all the facts surrounding a tax delinquent property, these individuals are generally better able to maximize their profits while minimizing their losses. Clearly that kind of research could add up to a significant investment of time and money, however, keep in mind that an informed purchaser almost always, over time, does better than a gambler. When making any type of acquisition, you should always do your homework. Research, research, research…that is to say the lack or presence of it, is often a leading indicator of how profitable or unprofitable one’s tax certificate, property tax auction, or tax deed purchase will be.

Laziness, ignorance, and failure to research on the part of delinquent tax certificate and tax deed buyers is often the cause for less than an ideal property tax auction or tax deed buying experience. Why? Well, human as we are, many of us simply are not willing to apply ourselves and do the necessary homework. Granted, one may, on occasion, get lucky by following others, a hunch, a rumor, or by taking shot in the dark here and there, but in the long run, it is only through patience, thorough research, hard work, and perseverance that delinquent tax buyers become may become successful.

Unless you know what you are doing, throwing your money to the wind in the purchase of delinquent property taxes, tax certificates or tax deeds in hopes of gaining big returns is misguided and potentially a good way to waste a lot time and potentially lose a bunch money or, at the very least, minimize your returns. Thus, if you only take one thing with you from this summary, it should be that if you are gambling on success, you would probably have more fun and possibly better odds visiting beautiful Biloxi, Mississippi, my home, and putting your dollars to work in the slot machines or at the tables in one of our many beautiful casino resorts.

Many an unlucky tax certificate or tax deed purchaser has discovered, much too late, that because a tax deed was not properly researched, it has been subject to things such as state and federal tax liens, bankruptcy filings, unsatisfied mortgages, environmental and wetland problems, improper legal descriptions, heirship challenges, clean-up assessments, demolition liens, double or improper assessments, improper descriptions, faulty publication, insufficient notification and/or suits to set aside tax deeds due to improper sale, to name only a few. In the final analysis, although fundamental due diligence, prior to tax deed acquisitions, property inspections and title searches, does not guarantee a successful tax deed purchase, they certainly increase one’s odds of building a quality base in tax deed property holding.

T. Mitchell Kalom of Kalom Law Firm, PLLC has over twenty years of in-depth experience with issues relating to Mississippi tax sales, tax certificates, and tax deeds. We stand ready to assist you with any legal questions or needs you may have in this area.