Step 4 of 7 - Ivesting in Tax Liens & Deeds

  1. Research the tax sale properties.

This is a very important step. First of all, always make sure the tax lien certificate or tax deed you are researching is still available. You wouldn’t want to spend time researching a potential lien or deed that has already been redeemed. Also, always make sure you are researching the property address and not the mailing address. Enough said on that point… Then you need to understand and be familiar with the rules for each County tax sale that you plan on participating in. Every County can have its own variation of the state laws, and each County is its own governing entity. You need to get and read the rules for every county you will be investing in. A particular county can have completely different laws than the county right next to it in the same state. The rules for the county tax sale will tell you what liens if any survive the issuance of a tax deed. This is where most of the newcomers to the business begin to ask a lot questions. I will do my best to explain what you are trying to accomplish by researching the tax sale properties.

When you are investing in tax lien certificates, you are purchasing a delinquent tax property debt that is owned by the county. Approximately 95-97% of the time you will receive all of your investment back plus whatever interest rate you locked in. This is a simple process. You invest your money with the County Government, and you get a check back from the Government plus all of the interest that accrued depending on how long the tax lien certificate was delinquent (how long the property owner took to redeem the delinquent lien.) What happens if the tax lien is not redeemed by the property owner within the time allotted by the county? This is a very good question. If the state just sells tax liens, than the tax certificate holder can foreclose on the property and receive the deed free and clear of any mortgages (remember, some liens may survive the tax deed, check your state codes for this.) If the state also sells tax deeds, when the tax certificate holder forecloses on the property a second sale will be held, and the property will be auctioned off with the starting bid being the total amount of unpaid taxes. If another investor purchases the property at this sale, at that time the tax certificate holder will receive the initial investment back plus all of the interest he or she earned. If no one bids on the property at the tax deed sale, the property is awarded to the tax certificate holder who started the foreclosure process.

So why is this important? This is important because if you purchase a tax lien you may end up owning the property. So if you may end up with the property, you probably want to know if there are any existing liens that you may be responsible for. I know I certainly would. Where can I found out what liens if any will survive the issuance of a tax deed? This can be found in the state statute in each state. Let me give you an example of the state Florida where I live.

If I wanted to research a tax defaulted property in Florida, of course I would research the area the property is located, the assessed & market value, the condition of the property, and so on. Now I need to research the title to the property to see if any liens exist on the property. After that, I need to know what liens in the state of Florida will survive the issuance of a tax deed to check and see if any of these exist on the property I’m interested in. Here is what the state law says in Florida (you may wish to consult with an attorney. I’m not an attorney, and it is not my intention to provide legal advice)….

Florida statute 197.522 provides in part, “ …except as specifically provided in this chapter, no right, interest, restriction, or other covenant will survive the issuance of a tax deed, except that lien of record held by a municipal or County Governmental unit, when such lien is not satisfied as of the disbursement of proceeds of sale under the provisions of Florida Statute 197.582, will survive the issuance of a tax deed.

So what does this really long sentence mean to me the investor? This means that in the state of Florida, the only liens that will survive the issuance of a tax deed (along with Federal IRS liens) are special assessments held by either the city or the county. So when I’m researching the title to the property in the state of Florida, I’m looking for IRS liens, and municipal & county assessments. If I need further help I can have a professional title company perform a title search for around $100. This is something you should always do when considering purchasing a tax deed property. Where can I find the title to the property? I can research the title to the property through the Public Records within the County. This may be done physically at the county records or through the county records online. Most of the Counties now have the public records available through the internet. You may be asking yourself, “What liens or special assessments do I need to be aware of in my particular state?” Well, you need to get a copy of the state laws for your state and find the section that discusses what (if any) liens or assessments will survive the issuance of a tax deed.

Also, I want you to now pay attention to the phrase “when such lien is not satisfied as of the disbursement of proceeds of sale” from the state statute paragraph from above. What this means is, if the property is bid up from the minimum bid (which is the total amount of unpaid taxes owed), then these liens may be covered in part or in full. So let’s say the minimum bid is $10,000 and a $5,000 County assessment is attached to the title of the property. If the property is bid up to $18,000, then the person who is the highest bidder will not be responsible to pay the $5,000 lien because it has been paid for by the disbursement of proceeds from the sale. So it is a smart investor who will be aware of all liens on the property that he or she may be responsible for if they are the winning bidder.

Here are a few brief rules when researching the real property title. What is it you are trying to do when researching the tax sale properties? Your task in doing a title search is to identify all of the encumbrances against a particular property and their order of priority. What is an encumbrance? The answer is anything owed against the property. For example (not necessarily in order of priority)….taxes, assessments, liens, easements, mortgages, trust deeds, pending legal actions, vendors claims, encroachments, and building restrictions. Who is number 1 in terms of priority of encumbrances? Priority or seniority for the purposes of our discussion is who gets paid first, and who will be second, and so on, if a foreclosure action is activated. According to Barry Adams in his book, “Researching the Title of Real Property”, the order of first priority is always the Property Taxes.

What is the Golden Rule…? – Always look at the property. Let me say that again…Always Look at the Property! You always want to look at the property before you bid. That is the number one rule in the tax lien & deed arena. Always drive by (or have some you trust or hire do so,) take pictures, and fill out a property evaluation form. It is better to be over prepared than under prepared. You want to make sure that the address you have is the correct address. On some of the County websites you will find pictures of the property. You still want to go and drive by and make sure that those properties match up and the website information is accurate. Sometimes the picture on the website will be different from the picture you take of the property. So what’s the lesson? Sometimes even the counties will make mistakes.