Tax Lien Questions

I just purchased a book on the basics of investing in Tax Liens. It should be here in a couple of days. But i have a couple of questions before i start reading it.

I’ll be buying these in Nebraska in a couple of weeks. Ive got a couple of properties picked out, but need to know more of what to expect. Here in Nebraska we get 14% interest on the tax lien and the holding period is 3 years. My questions are:

  1. If i buy a tax lien for 1.5 years of back taxes on a property, would it still be a 3 year holding period? If its a 3 year hold and the owner doesnt pay up and i aquire the property, will i be responsible for the yearly taxes while i am holding the lien from this year? If so, what would then happen if i hold this years lien and they have not paid up and i dont have the money to buy the remaining years?

  2. If there is a mortgage on the property, do the banks usually get the tax liens?

  3. If the property i am looking at has a tax due of $1500.00, Do i go and have to bid $1500? or can i bid lower?

Don’t buy a tax lien. Buy a property. If the property has been foreclosed upon due to a tax lien, all other liens and mortgages should be gone. Don’t even go near a property with other liens on it.

You are not responsible for taxes on property that is not in your name. Once you have title, you owe any taxes due.

Also, be careful of predatory lending statutes in your state. If the lien is on a person’s primary residence their may be a usury limit on the amount of interest you are allowed to collect on asset backed notes.

Do a title search before putting in a bid so you don’t end up 6th in line behind other lien holders.

If the property has $1,500 in taxes due then the starting bid at the auction will be $1,500 and most likely the winning bid will be more than the starting bid. This means that the 14% interest you thought you would earn on the lien may very well be less than 10% depending upon the demand. Tax lien investing is unique to each locale so study-up and understand the rules of the markets you will be bidding in.

i wouldnt pay any more than what the starting bid is. But what happens if i go and buy a 6 or 12 month deliquent tax lien for $2000 at a 14% interest rate and the owner pays if off 2 weeks later. Do they then owe $2000 plus $280 (14% int) or would i have wasted my time to make a couple of bucks?

Maybe im thinking wrong on some of this as i have went through 600 properties and picked a handfull that i want to bid on in hopes of gaining title over the course of 3 years. I also eliminated owner occupied properties in good conditions in fear that they would pay the bill right away.

This is why it is called an auction, the county wants to get top dollar for their tax lien sales therefore they legislate an attractive interest rate 14% to attract buyers. If you are the only bidder then you will likely get the lien for face value but what are the odds there will be no other bidders? You need to study the local rules to answer the last part of your question.

i might be wrong, but i live in a county with 10,000 people and there are aproximatly 600 properties up for auction with the majority of the properties being delinquent of more than a year. Some are only 6 months but most are over a year. This tells me that people are not buying them. I could be wrong, but i cant see many people going to this auction and those that do are probably only looking to pick up a few and want to get them at face value. I still need to do a lot of research on these, but non-less i will go this year to see what to expect.

I hear what you are saying but tax lien investing has become ever more popular as gurus push the strategy and some municipalities have quite the competitive bidding at their auctions. Best strategy is to attend your auctions of interest and learn the ropes. Become expert in your market and that is how you create wealth. Good luck and let us know how it goes.

Ok, got some questions answered from the Treasurers office. He said that there is usually only 20-25 people at the auction. He also said that each person draws a number from a hat and depending on the number they set blocks of properties that you can choose. If you dont want any of those properties, it goes to the next number drawn and so fourth. Ive got a handfull of properties picked out that i beleive would have a chance of defaulting and might be able to take them over.

Ive never researched properties like this before, but i would like to find out about the home owners. How do i find out if there are any liens against the properties? Is there a way to find out if the owner is in a position to file bankrupt? Would it be wise to do a credit check on the owner before bidding on the property?

Tax defaulted properties are a unique species. I have bought tax liens/and or deeds in Ok, Az,NY and Texas. In Oklahoma, Tulsa, I ended up getting 3 properties for a fraction of the market price after the time ran out for the delinquent homeowner to redeem.

I would advise you to wait until you get your material, as there is no such thing as general answers to tax lien questions. Each state and sometimes counties within states have significantly different rules. In some states, any mortgages on the property when it is taken for taxes, are wiped out. In other states, State Agency mortgages are not. Also you have to make sure the mortgage holders were properly notified, or their mortgages are not wiped out. Same with other types of liens, in some states they are wiped out and not in others.

Do your homework carefully and always check out the property you intend to buy the lien on, it may have been bulldozed years earlier!

Good luck,

Bill Young

I got this out of a state guide written by the tax lien lady. Your 3 year redemption period starts when you buy the lien. You must start foreclosure proceedings within 6 months of that period. Failure to start foreclosure within 3 years and 6 months of the original sales date will result in cancellation of the sale due to the statute of limitations.