Reasons to invest in Tax Sales

Foreclosures, Short Sales, Tax Foreclosures
1

Most people, due to a lack of knowledge don’t really bother. Some might assume they need to have legal expertise or a real estate background to purchase liens, or some might believe such investments to be too risky.

Here are 7 reasons why you should consider investing in tax sales (tax liens & tax deeds.)

  1. Tax Sale investors can perform better than the stock market, getting 10-300% returns (by investing in states that levy penalties.)

  2. Tax Sale investors have a great amount of control over the whole process from start to end.

  3. Tax lien certificates are a first position lien, putting the tax lien investor ahead of all other liens (with the exception of an IRS lien.)

  4. Tax lien certificates make a very stable investment.

  5. Anyone can invest in Tax Sales with any amount of money and receive excellent returns, provided that you are knowledgeable and perform your research BEFORE you attend the Tax Sale auction.

  6. Tax Sale investments are 100% legit, they are administered and enforced by the county/municipality and part of the state statute and local codes.

  7. Tax lien certificates make excellent investments, because your money is protected by the Government Property Tax Codes, and the certificate is secured by the underlying real estate, most of the time worth 90-95% more than the certificate itself.

For an example of how a tax lien is created, let’s say a homeowner owes $2,000 in County property taxes and is declared delinquent. The county will place a lien on the property and will then sell it at an auction in the form of a tax lien certificate.

Investors at the auction pay the taxes and possibly some other costs. Starting at the time you buy the lien, interest starts building on the unpaid taxes. Winning Investors pay the unpaid taxes plus any premiums and are issued a certificate, which will start earning interest until either the property owner pays the taxes or the Winning Investor can foreclose on the property.

Tax Sale announcements and lists are usually published in newspapers a few weeks before the actual sale. Tax Sales are held all across the United States. Tax Sales may take place online, or in person at the local county/municipality department of treasury. At the time of this writing, a lot of counties are moving their auction sales online. Check with your local department of revenue taxation to see what the norm is where you reside or wherever you are interested in investing……

2

Great info… I have always steered away from TL mainly cus of the title companies in California being a little apprehensive to insure… That and our 5 year period…

Again good stuff

Michael

3

yeah I agree Michael,

California can be a bit of a pin, especially in the southern counties…everybody in the country wants to live there, and they bid the properties up real high.

It was real good years ago, but as of late, the southern counties are quite competitive. It gets better as you head to the northern part of state.

thanks for the reply,

4

I have wondered about these types of things here in Texas. Because our taxes are so high people get behind all the time.

5

Hey Christopher,

nice to meet you!..great forum you are controlling here. Lots of good topics and responses.

I’m glad you asked about Texas…TX is really a unique state. It has the highest percentage rate an investor can earn…and also has the shortest redemption time you must wait before you can foreclose on the property and get the deed to the property free and clear of any and all mortgages.

Texas is 1 of only 5 Redeemable Tax Deed States…(TX, CT, GA, HI, TN)…in these states, an auction takes place on delinquent properties to sell the deed to another investor. But, these states then allow a small period of time for the prop owner to come in and redeem, and they have to pay a flat rate unlike most tax lien certificates that accrue interest on a monthly basis…

If the state is a REDEEMABLE TAX DEED state, that stands for a penalty state. For example… TEXAS is a Deed penalty state; In Texas if the property taxes have not been paid on a particular property, then the county will take it to a tax DEED auction just like California. But the DEED that is issued is considered a “Sheriffs deed” not a “deed absolute”. So in Texas the county will give the homeowner 180 days to redeem the property after the sale has taken place. If they do not redeem the property then the deed holder can foreclose on the prop. and get the title to the property free and clear of any mortgages. The interest rate you will receive in TX is 25% if the homeowner does redeem, but this is a flat rate. That means the homeowner could come in on day 4, day 24, or day 54, and have to pay you a flat interest rate of 25%. If the Deed Certificate holder chooses not to foreclose on the property after 6 months, the ROI becomes a flat rate of 50% if the Deed Certificate is redeemed in the 2nd year.

They don’t fool around in TX (just like their laws w/the death penalty…the penalty for not paying the taxes to the county can result in losing your home rather quickly.)…Also, on a yearly basis TX has more sales than any other state. TX has 254 counties, and every county has 1 sale every month. That is over 3,000 tax sales a year.

You can build up some serious wealth quickly in TX w/out ever having to obtain or take over a property…just keep earning 25% within 6 months and your funds will increase dramatically.

Good Luck

6

Taxlien,

You are absolutely correct about the tax laws here. I always warn my customers that want to waive their escrows that the State of Texas will take your property very quickly if you don’t pay your RE taxes and that they should be absolutely sure of what they are doing. Think about it. There are parts of Houston where the tax rate is 3.1% or higher. That means on a $150,000 house your taxes are over $4500 per year. And the worst part is they are due RIGHT AFTER XMAS.

7

Thanks for sharing those statistics, I was not aware of that. That is a really high rate.

You are right, unfortunately, people lose their homes or properties all the time in TX. That is just the way it is, the county really has no choice but to penalize. If they didn’t penalize, then nobody will pay the taxes and the county will go broke and absolute chaos will be soon to follow…The county needs to maintain structure and stability.

So, if this is going to happen, why shouldn’t you, or I, or any other member of this forum be the one to profit. I mean, we have just as much right to the American Dream as anybody else.

thanks for the statistics, good to know:)

8

MichaelQuarles is sitting there in the catbird seat. If you are in the San Joaquin Valley (Fresno. Modesto, Bakersfield, etc) you get all the good stuff to live in California for but not all the BS from the big cities. The house prices are not a lot different than in Texas but you have the California sunshine. For example you can get a 3,000 sqft house that would sell for $1.5 million in LA costs $250k in Bakersfield. To fund that kind of lifestyle you can actually afford to do rentals. You have a good employment base with agriculture, petroleum and manufacturing. The unemployment rate is a bit high now lead by agriculture because of the drought which should be temporary and once it is back to traditional levels there will be a very good rental market.

9

Hello,

This is a very interesting thread that is developing. I live in the state of Georgia, Fulton County (which had some very interesting facts posted in an earlier post). I am very new to the world of Tax investing but it seems like an interesting avenue with less risk. In GA the tax auction prices rise, and sometimes can rise greatly...I was wondering lets say I buy a tax debt of 4000 for a final price of 8000, would the person who actually owe the debt now have to pay me 8000+interest or would they still only owe the 4000 debt?

I understand there is the possibility of obtaining the title, but more often then not, I hear that people actually redeem. So I was just wondering how that whole process works?

Thanks

10

Hey guys, great info you put here !!!

You got me all excited about tax sales now.

I want to learn more.

I go to the foreclosure auctions at the county building every month and have purchased several houses in the past. The last time I was there as I was leaving I came across a bunch of people with little numbered pallets, I stopped and asked what was going on and I found out it was a tax sale. So now I know when and where they hold them and you are right they are conducted by a sheriff’s deputy.

So let me get this straight….
A homeowner owes $3500 in taxes to the city.
January 31 comes (I live in Texas) and he doesn’t pay.
Now the city puts a tax lien against the property for $3500
The city sells that lien to an investor for $3500 plus fees (any idea how much the fees are???)
I (the investor) buy the lien for $3500 plus fees.
The owner now has 6 months to repay me the $3500 plus 25% ($875)
If he pays I just made 25% on my money in 6 months.
If he doesn’t pay I can now foreclose on him and not worry about the bank who holds the first lien on the house.
Once I foreclose I own the house free and clear and can do with it whatever I want (rent/sell).

Is this correct???

Now the questions:
Are the liens sold in auction style???
Can they sell for less than $3500???
Can they sell for more than $3500 if investors start bidding on them???
The 25% the owner pays is it just on the $3500 or the full amount I paid for it???

Thank you in advance for your responses.

11

Hey Carlos,

glad you enjoyed that…let me do the best I can to answer your questions here…sorry about the delay…

yep, those are the people…but I bet they’ll never say anything to you…they want all the properties to themselves

yeah, you kinda got the jist of it…let me use some nice round numbers for you to understand easier

they are not really selling a tax lien certificate…they are selling a deed to the property with a 6 month right of redemption for the homeowner…The rules in TX require the prop owner to redeem the tax deed in 180 days or they forfeit the property to the deed purchaser…The prop that is redeemed (paid the taxes, plus any bid, plus 25%) must be redeemed by paying the taxes, plus any amount bid above the taxes, plus 25%. OUCH!!! If a prop owner elects to pay you the back taxes and penalities, they must pay within 180 days…The amount due is whatever you bid - no matter how high - plus a 25% penalty…this is not an annualized payment like a certificate…it is a flat rate penalty payment plus 25% what was bid at the auction.

Conceivably, you could buy a tax deed on Monday, for say $10,000, and the prop owner could redeem (pay you) on Tuesday and the prop owner would be required to pay you $10,000, plus the 25% penalty…or $12,500 total…if the prop owner refuses to pay or cannot pay, in 180 days, the deed, which you were issued (sheriff’s deed) becomes a deed absolute, and all the mortgages fall off after the foreclosure process…pretty good huh?

If you were to buy one redeemable deed each month, and they all got redeemd within 30days or so…you would benefit from a 250% annualized Rate of Return.

It dont get much better than that!

Sincerely

12

Hey ric,

here is the response to your question on Georgia…If the back taxes are $4,000 and you bid the prop up to $8,000…if they homeowner redeems anytime in the first year, they have to pay you your investment of $8,000 plus 20%…which would be a cool $1600…and you never took ownership of any property…you just bought a pice of paer, went home and put it on your desk, and waited for the tax collector to contact you to come and pick up your fat check…

The Tax Sale – The Big Day Has Arrived

It is the first Tuesday of the month. You wander up to the courthouse about 9:45 and a few other investors are there. Go ahead and talk to them – you might learn something. Some people might be there to bid on one property, or merely to watch the action. Occasionally you will learn that a competing bidder lives next to one of the properties. That is a bad sign, because an adjoining owner is often willing to pay a premium to control the property. Consider concentrating on other parcels if this happens. Learn what you can before the sale begins. It will help you decide where to focus your bidding.

Finally, the Tax Commissioner appears, makes an introductory statement, and then begins reading the legally required description of one of the properties. Then, the Commissioner announces the minimum bid and asks for offers. Now the excitement begins! With adrenaline flowing, the interested bidders raise the price until only one is left. Going once, twice, SOLD! One property after another hits the auction block, until all the deeds have been sold. Sometimes you leave with a tax deed, or two, or three, other times you may be shut out. Whatever the outcome, it will soon be time to plan for next month’s sale. If you prefer to avoid the hassle of foreclosing, simply wait 4 years. The former owner forfeits all redemption rights after 4 years have passed. For full details on legal requirements, consult an attorney.

I have a Deed! Now, what is Next?

The Tax Commissioner will record the deed and mail it to you after the sale. Put it in a safe place, and let the time pass.

  • You already have an instant 20% return on your investment, even if the previous owner redeems after a day!
  • After one year and one day, it is 30%.
  • After 2 years and a day, it is 40%.
  • After 3 years and a day, the former owner must pay a 50% premium to redeem.

Any time after 1 year, you have the option to “foreclose on the right of redemption”. Upon completion of the process (which takes a minimum of 45 days), the property is yours, no matter how much or how little you paid for the Tax Deed. Now you own the property free and clear of any mortgage liens.

I think Ray Charles could see that’s a pretty good deal.

13

taxlienadvisor,
Thank you for starting this interesting thread…As you can tell I live in NYC…I was wondering if NY was a good or bad state to do tax liens in…I also was researching books on the business of buying tax liens and the reviews seem mixed…Alot of complaints in the review section of the books saying that its very competitive and not as easy as the books portray etc…Your opinion?..Can you tell me how i should I go about the process in NY if at all…I went to the nyc.gov website and they have an area that lists all property liens water and non…And they have link that warns against predatory lenders etc…Would that be us ?..Its of no surprise that there is literally thousands upon thousands of listings due to the current economic climate…Is there a business in purchasing water liens or just property tax liens?..And what is considered predatory lending in NY state or is it based on standard usury laws in the state.Also is the goal to buy the best area lien on the nicest property?.And what does the mortgage amount come into play into this decision to buy the lien or not…Isnt it realistic to assume that if the house is upside down on the mortgage and essentially worthless how do I collect my interest and recoup my investment in the tax lien…I did read that in NYC the person who owes on the said lien has to pay %18 + %5 surcharge to clear the lien…So maybe there is money to be made…Thank you for any opinion or advice you have…I would also be interested in what tax lien books you deem valuable to read…Thank you again…

Actually just read that NYC does NOT sell liens to individual investors… But all other counties outside of the NYC and surrounding boroughs do allow individual investors to buy tax liens…I also called a college buddy of mine who is an RE attorney in Florida and just so happens he is a board member for a network of attorneys specializing in tax liens in Florida,lucky me…Now I can bother him for free…He unlike me has a life outside of business and will touch base with me on Monday to discuss my options…I’ve been spending the day researching this option and have become fascinated by it…Ty for posting this thread taxlienadvisor…

14

Hey NYC,

Nice to meet you. NY is classified as a state that salle both tax certificates & tax deeds. Although, to keep it simple you want to think of a NY as a tax deed state. Here is why…there are only about 4 counties in the NY city area that sell tax liens, these tax certificates pay an annual retrun rate of 14% and the redemption period is 1 year…I really do not think you should spend the time researching this, all of the liens are bought up by the big banks and big investing companies (I’m not even sure if you would be able to get near a sale)…so the point is, don’t expect to buy any certificates in NY City. they do however sell tax liens in other areas…check on the 14% I may be off a few points.

Now, the rest of the state, and especially in the central and northern part is fantastic for purchasing tax deeds…One of the best sales in up in the Buffalo area…they will be about 400-600 properties that go up for sale in the Buffalo area this year, and the sale will be sometime in the fall.

Yes, there is some competition, you will not be the only one at the sale. These complaints may come from people who have boughten into the TV infomercial programs (I’m not going to name names but you know who I’m talkin about)…if you are expecting to buy a property for $300, it ain’t gonna happen. Yes, it is not as easy as putting your money in a savings account…there is a little research that needs to be done, you need to check the title to the prop., you need to be familiar with the state statutes for NY, you need to go look at the property, you need to prepare for the sale, you need to be familiar with the bidding process, you need to register for the sale, you MAY need to put up a deposit first (this will depend on the sate and the county)…(these refunds are refundable…unless extremely small)…you need to bid on the proeprty (which is a lot of fun)…and the properties you do acquire ofr the certificates you get may require you to protect the investment.

With all that being said, the rewards you can get from investing in liens & deeds far outweighs the learning curve to be able to successfully buy them. Besides, you are learning something new that not too many people know how to do. I’m always an advocate of learning something new, and being able to profit from it as an investment.

I have not read over the state laws for NY simply because I myself have not invested in that state before…I would have to look into predatory lenders to see what that is and the way it works in NY…no, you are not a lender on the property…you would be an investor going to a sale to purchase Tax Defaulted Properties…there may be liens that may survive the issuance of a tax deed if the proceeds dont cover them (the amount the prop is bid up from the total amount of delinquent taxes)…

you are right there are literally tens of thousands of tax liens available I’m sure…in my county here in Florida we had 30,000 tax liens auctioned of in June…and tyhousands that were not even bid on…I know nothing of purchasing water liens and cannot comment on that…dont worry about the mortgages, it is wiped out after the sale…

I just got to the last paragraph…that is great that you have someone especially an atty who is familiar with the process…I would not have recommended just going to a sale and start buying tax liens…that is not smart…there are things to consider and important areas to research…Once you have learned everything, it is a fairly simple process…but there are rules and regulations and laws to be aware of.

If you have anything else you want to post…or if you find interesting facts…please post them…we will all benefit from it.

Good Luck Happy Investing

15

taxlienadvisor,
Ty for the reply…upon the research I have done on my own the auction process seems more beneficial in the smaller counties in Florida and Im guessing the same in NY state…I do about %75 of my Hard Money Lending in the state of Florida so I will explore my options in that state first…My friend did send me an email and said he would also give me the contact info for a tax lien attorney in NY state…Monday should be an interesting day as I will follow up with both attorneys and post my results…

Thank you for all of the added information…Any info on tax liens in Florida would me much appreciated…

16

Cool,

The auction process is prety much the same in all counties in Florida. You are right, some counties are better than others. Although it is not really the size of the county, but rather the location of the county. Dont expect to get a property in Miami, Ft Lauderdale or West Palm Beach for 10 cents on the dollar. It is probably not goingto heppen…The southern part of Florida is very competitve, jute like California.

There is no right or wrong county for investing in tax sales, just like pretty much any other real estate field. Sometimes the blind date goes really well and you score…sometimes the date goes horrible, and she throws the glass of wine in your face and storms out. There are no guarantess in life except that “there are no guarantess except for death and taxes”

Let me give you an example of why thorough education & research in my opinion is the most important…this is a really good story so read it…Last late summer a young man named Brad R. in his early twenties flew down from Idaho, and attended the tax deed sale in JAcksonville FL, which is in Duvall County. Whether or night I was involved in this process is not the important thing…the important thing is that he was told to thoroughly research the information on the property through the County Records, and was told to go see and look at the prop with an evaluation sheet…Something was wrong…the information that was through the county, and the prop judt didt add up…Finally, the answer appeared…

The homeowner had gone and changed the numbers on the houses…seriously, the homeowner switched the visible number of the home…People who are about to lose their home through an auction will go to great lenghts to see that they don’t…

Anyways…obviously, no one else at the sale that day had figured out what Brad finally did…because he was the only bidder who raised his hand…there was about 80 properties at the auction, and about 60 people in the room…no one bid but Brad…the back taxes were $8,600…he got the property for $8,600…the prop was worth $140,000.

So the lesson is this…always learn as much as you can, and make sure you always follow all the steps just like with any investment…if you stay with it, and you try as hard as you can…and you are always diligent in learning nerw things…you will stumble upon the deals and make some big monies.

Good Luck

17

This is a really old but really interesting thread so I’m going to revive it anyway.

Michael,

As a potential Texas investor, I’m fascinated with this topic but I do have a question that I’ve not seen addressed in any of your or other’s postings on this topic…

Let’s say you successfully bid on a tax lien and are awarded the certificate. If the property owner does not redeem the certificate, then the property legally passes to you and you become the new owner free of any prior mortgages (assumes no other tax liens). Now you’re the property owner but you have a new problem… You have a tenant in the property that has to be gone if you want to sell the property and they might get unhappy at your suggestion they move out.

Obviously the best scenario is for the owner to make good on the taxes and the interest…but what about the 8% or so scenarios out there where they don’t? You know own the property free and clear but potentially now with an unwanted (and possibly dangerous to the property) tenant.

What have been your experiences with this or that you’re aware of with others having this problem? What’s the usual protocol? Have the Sheriff’s department throw them out?

Thanks.

-Bill

18

Hi Bill,

Hope you don’t mind if I jump in here with my 2 cents.

First of all only a very small percent of liens do not redeem. It’s closer to less 1% if you do your homework and buy liens on good properties. Texas is different because it is a redeemable deed state and not a lien state, so the rate there is a higher.

Secondly you don’t just get the property if it doesn’t redeem, in most tax lien states you need to hire a lawyer to foreclose the lien and then you will have to evict anyone that is in the property before you can do anything with it. You will also have to clear the title to the property before you sell it. The exception to the foreclosure process is Florida, you don’t actually get to foreclose on the property - you apply for the lien to go to deed sale. It gets sold in a deed auction and you will be paid on your lien - if you did your homework and bought a lien on a property that other people want.

Another note about Texas - you don’t have to foreclose in Texas. You are considered the owner of the property after you purchase the redeemable deed and record it. You can take possession of the property once you record the deed but you may have to evict any occupants. You need to be careful though on how much money you put into the property because if the previous owner redeems the deed you may not get all your expenses back.

19

These are a great source of information. Indeed, investing in tax sales is a good way of having a bright future for the family knowing that you have a home of your own. Furthermore, there other ways of investing too like tax liens on bank foreclosures properties by the county as well as the state.

20

Does the county (I am in Texas) ever take bids on resale properties for UNDER the minimum acceptable bid?

It is unclear in the language on wether or not they will even consider anything under this amount, but for a property which has been sitting on the docket for several years perhaps they actually judge certain offers?

P.