Unless owned by a nonprofit organization or governmental entity, all real estate in Louisiana is subject to ad valorem taxes. The ad valorem tax is based on the value of the property as determined by the parish tax assessor.
If real estate is located within the boundaries of a municipality, ad valorem taxes are due to that governmental entity. Parish ad valorem taxes are payable for all real estate in that parish. Thus real estate located within a municipality will be taxed by the municipality and the parish.
The Louisiana Homestead Exemption excludes from parish taxes the first $75,000 of the assessed property value for owner occupied residences. The exemption is for properties located both in and out of a municipality. Parish tax assessors re-access the value of real estate every four years.
If the annual real estate ad valorem taxes are not paid, then that property goes to a tax sale. Municipalities and parishes can hold separate tax sales. A tax sale purchaser, either at a municipal tax sale and/or a parish tax sale, becomes a tax sale owner. Some properties have a separate municipality and parish tax sale owner.
Real estate owners fail to pay ad valorem taxes for several reasons including:
1. Mistake/inadvertence;
2. No further interest in ownership of the property due to lack of value in property;
3. Economic challenges of the owner(s);
4. Delay in paying with knowledge of the right of redemption.
If a real estate property is not purchased at a tax sale, then it is adjudicated to governmental entities owed the taxes. Adjudication means the transfer of title by a deed to the municipality and/or parish. Thus the owner of record of the property becomes the municipality and/or the parish.
Tax sale properties may be redeemed by the owner(s) who failed to pay the ad valorem taxes for a period of three years after recordation of a tax sale deed. There is an 18 month redemption period for blighted/vacant properties in certain areas. (A separate article will address these properties.)
The right of redemption applies to both adjudicated properties and properties purchased by third parties at tax sales. Redemption requires payment of the taxes due at tax sale, interest, and other fees as set forth by statute.
Sophisticated investors determine the value of a real estate property before the purchase of tax sale property. Real estate of low economic value, due either to the condition of improvements on the land and/or the overall neighborhood values, are rarely purchased at tax sale. These properties become adjudicated to the governmental entity owed the taxes.
As neighborhood real estate values decline, the number of tax sales in those areas usually increase. This is the reason for large numbers of adjudicated properties in neighborhoods that are occupied by socially/economically disadvantaged residents.
Tax sale purchasers rarely maintain or improve the structures on these properties until they have cleared the title after the passage of three years. This generally results in future property value decline in those areas and often more tax sales.
Properties with improvements sold at tax sale are either occupied or vacant. If purchased by a third party, residents living on those properties can be forced to pay rent to the tax sale purchaser.
Tax sales are for the ad valorem taxes due and payable for the preceding year. A purchaser at a tax sale will owe ad valorem taxes for the year of the purchase. If not paid, then the property will go to tax sale in the next succeeding year. It is not unusual for properties to go to subsequent tax sales or to be adjudicated after the initial tax sale.
Properties that go to tax sale often have problems in their chain of title. This is the case with property that is referred to as "heir property."
Often successions are not filed for prior owners who died and thus the owners of record are deceased persons. The heirs of these persons fail to file a succession(s) due to many reasons. These include the cost for the needed legal work, the low value of the property, dysfunction/lack of agreement by heirs, heirs living outside the area, and/or the amount of the taxes. These properties often become adjudicated.
These are the reasons for the large number of adjudicated properties in Shreveport--estimated to be approximately 6000. Absent major changes in the neighborhoods of these properties, the economic value of these adjudicated properties rarely increase, and most likely decrease, in subsequent years.
For obvious reasons, properties of substantial value rarely go to tax sales. And if they do, the overwhelming majority of those are redeemed within the requisite three year period. Thus almost all adjudicated properties have little economic value.
This article is intended to be the basic nuts and bolts of tax sales and adjudicated properties. These are fairly complex issues and the various nuances of both are not addressed. Future articles will address clearing of title to tax sale purchases and other aspects of tax sale properties.