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Due Diligence Issues in Commercial Real Estate Transactions Part III:  Clearing Tax Sale Certificates from Title
By Christopher R. Sullivan on November 11, 2019

Due diligence is a comprehensive and critical component to any commercial real estate transaction.  In Part I of this series, we examined what tax sale certificates are and how they are acquired.  In Part II, we analyzed the effect tax sale certificates have on acquiring clean title in a potential real estate acquisition.  In this Part III, we discuss how potential purchasers of real estate can address outstanding Tax Sale Certificates prior to taking title to the property.    

Engaging a reputable title company to assist with due diligence is one of the key components of any commercial real estate transaction.  Before issuing a title insurance policy, the title company will first conduct a title search (the "Title Commitment"), which generally involves an examination of all of the recorded property transfers and existing liens and encumbrances impacting a property, including Tax Sale Certificates (TSC).   

In the majority of cases, a purchaser will learn of the existence of a TSC or other foreclosure action from reviewing the Title Commitment.  Like a mortgage or other lien affecting a property, TSC's must be properly satisfied or otherwise discharged before closing on the property.  In the case of a TSC, the purchaser should work with the title company to obtain accurate TSC redemption figures from the local municipality and coordinate proper satisfaction and discharge of the TSC in conjunction with the local clerk/tax collector prior to taking title to the property.  In most instances, the local clerk/tax collector will facilitate the payoffs to the TSC holders. 

After the TSC is properly addressed, the title company will revise the Title Commitment to reflect same.  At closing, one of purchaser's final due diligence obligations should include reviewing the actual title policy issued by the title company.  The title policy is based on the Title Commitment and purchaser should ensure all the information (including discharge of the TSC and any other title issues) are accurately addressed and are consistent with the revised Title Commitment.

Attorneys in Parker McCay's Corporate and Real Estate practice group handle a multitude of issues surrounding the sale, purchase, lease and financing of commercial, industrial and residential real estate. 

The content of this post is for informational purposes only and should not be construed as legal advice or legal opinion. You should consult a lawyer concerning your specific situation and any specific legal question you may have.

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