Tax Lien Sales

Just finished another year of tax lien sales and I am amazed at how many people watch the late night gurus and KNOW nothing about what they are doing.

They bid like a wild man, telling you that they have just bought a piece of property…Duh?

Talked with several and NONE of then had any idea:

What is a tax deed…?

What happens to the mortgage on the property:

Are all liens wiped off?..Most common response was …“What is a lien.”

What is the redemption period…?

What is quiet title action…?

What is quit claim deed…?

What is special warranty deed…?

Amazing at the lack of knowledge and spending of $$$.

Why did you bid so much…common answer…because I wanted the property…NEVER knowing that 98.9 perent will be redeemed and the overbid is LOST.

Made for a very interesting sale again this year.

If ignorance is BLISS…we had a lot of BLISSFUL people at the sale this year.

I have been watching these tax lien sales. In fact I was even in CO last week for a physical auction. CO is a premium bid state and folks there were bidding the premium up by over 10%. In CO, the interest rate is currently 10%. If the home owners redeems within a year, they will lose money.

Am I missing something? Many of these investors who were paying such a huge premium were businessess (LLC, partnerships etc). Thes folks buys liens in millions of dollars.

The fact that they bid it up and buy in millions is most likely explained by the simple facrt that if they get investor/clien/CD Holders $$$ and are paying a mere $0.015 percent per year it is a wining situation for them.

Their potential losses are well covered by their gains.

Have seen all sorts of banks, investment groups, etc., enter the market in the past 20 years or so.

Used to be a fairly gentlemanly investment device and has becomd a dog-eat-dog situation now.

Makes lots of sense to invest a million at 10 perent and pay out 1.5 percent…not rocket science to see how the money is made.

Very few of them are investing for the property. Lots of inherited culpability comes with the property.

imethan08, fine, what ever turns your crank.

I prefere to do my own research.

I have to agree with you guys here. Tax lien sales are less about buying property and more about making a return on your invested money. In my opinion, tax lien sales are more comparable to 6 month bonds than an actual real estate transaction. The main difference is that the return is much more attractive.

As I have often said …buy tax liens for the interest and penalties…NOT for the property. Your chances of getting that $189,750 house for $27.95 in taxes are about as good as hitting the mega-millions or other lotteries.

One must remember that POSITIVE things sell…Have been doing tax liens since 1988 and have NEVER heard anyone tell of someone losing $$$. Plus, if it was a easy and lucrative as the gurus would have you believe they would be doing it instead of selling books and tapes on how to do it.

Simple math says that if you sell 1,000 boks and tapes at $595.00 or $595,000.00 and none of them tell you how long it would take to make that amount by ACTUALLY going out and investing in the liens.

One of the gurus that I knew actually made $375,000,000.00, yes, 375 million. However he is now serving time in federal prison for shall we just say. “Excessive Puffery”.

Do your due dilgence and remember if you have NEVER lost money in real estate…you are not doing much real estate. Ther simply is no such thing as the Free Lunch.

There are still many areas, tax deeds and tax liens that are out there. The issue is you must review ALOT of data to get to the property.

Here are the steps in the process for a typical person looking to buy a tax lien or tax deed.

  1. Locate the County and determine the date of the next auction.
  2. Within the county website locate the list of properties that will be included in the upcoming auction. These are represented by a parcel number, sometimes called an APN.
  3. Extract this data and move it into an excel spreadsheet.
  4. Go back to the County Assessor’s office and using the Parcel Number, extract the value and any other information that may help in determining what type of property it is. Hopefully you are able to determine if it is a land parcel, a condo, a single family home, etc., but as I learned very quickly this is not always the case.
  5. This process, even after I have been doing it for sometime will require 5 to 10 minutes per parcel.

This is where I think the majority of potential investors stop. If it takes 5 minutes per parcel number to gather the needed data to begin researching a particular property, and you must do this on all of the parcel in any given auction, the investor simply runs out of time and patience.

For example:

  1. If each parcel takes 5 minutes to copy and paste the data into excel (it could easily take more time than 5 minutes).
  2. A typical auction could contain 400 properties in only one auction
  3. 5 minutes x 400 = 2000 minutes
  4. 2000 minutes divided by 60 (number of minutes in an hour) = 33 hours
  5. This is 33 hours total that you would spend just getting the data into an excel spreadsheet
  6. Let’s say you can devote 4 hours a day to this process (late at night), because let’s face it most of us have a job too
  7. That is 33 hours total, divided by 4 hours per day = 8 days to just extract the data
  8. Now add in another County that is holding an auction around the same time, double the work or lose the opportunity

If you are serious about investing in tax liens or tax deeds, there are services out there that supply the data that will allow you to review a massive number of properties. The County only provides the basic info, sometimes only the parcel and minimum bid

I do not waste my time trying to look up each parcel and enter it.

I buy the CD and download it. 12,992 parcels n last sale and I would still be looking up the 70 plus pages of claffied print from the newsaper.

In virtually very state the statutes rquire public notice, normally in a local paper. Just call the tax agency and ask how they get it over to the paper. Then POLITELY…yes…POLITELY ask if they will sell you a copy of the data in some fownloadbble form.

Problem is that most people new to the industry prefer to trust the late night infomercials and then fail and blame it on everyone except themselves.

This is not an industry that DOES NOT require due diligence and is without risk.

From what I have observed, there really is only one way to make money investing in tax liens. Bidders bid the interest rates down very low, and there is only a small chance of actually getting the property by purchasing a tax lien, so it is difficult for the average investor to make money, BUT, this is a great opportunity for lawyers. If the tax lien is not paid off within a short period of time (which differs between states), the tax lien holder can file court papers to get the property. Even if the tax lien is paid off and property returned (which will most likely happen), once the papers have been filed the property owner still has to pay the lawyer’s legal fees, and the minimum legal fees are set by the state.

I saw groups of lawyers purchase many of the liens. They may earn some interest, get lucky every now and then and actually get a property, but they are almost always guaranteed a set amount (as much as $500 or more) per property that they file court papers on. If they buy 100 tax liens (and the minimum legal fees are $500 per filing), that’s $50,000 even before considering any interest earned.

Wonder why you are so negative about tax liens.

100 X 500 is $50,000.00 NOT $500,000.00.

Like any other part ot the R/E industry,due diligence…is an absolute MUST!

There simply is no such thing as the free lunch.

Truly it has become a dog-eat-dog industry that you can still make good money.

Yes, there are bid up and bid down states and some in which you only bid up the taxes.

And, then there are TAX DEED states in which you get the property subject to a right of redemtion.

Then there are others in which you must do all the work…Notify the delinquent taxayer, publish the paper, do the work, wait the fime, file the foreclosure, etc.

It is NOT, as is all real estate, a get rich quick business.

Have not heard of lawyers controlling the industry.

Yes, in some states they do all the work and of course get paid.

SO, what is wrong with hving to do a little basic HARD WORK to earn our $$$ ??

Sorry about my math (I had it correct at first (and just corrected it), but changed it before posting) and I hope that it did not take away too much from my overall idea.

I’m not down on tax lien sales, but I do believe that the legal fees are the real way to make money with tax liens - at least in Washington, DC and Maryland.

Some people became rich by mining for gold, some became rich by selling services to the people mining for gold, but tax lien sales are not really a choice between one or the other as some can do both. Some lawyers advertised their services at the tax lien sales and they would make a set amount for each filing they made on behalf of the tax lien holders. As you wrote in your first posting, there are a lot of people making poor bids and they will probably not make much from the tax sales, but their lawyers would - and will make something from most of those poor bids when they file the court papers (this is not meant to be a criticism of lawyers).

As I wrote, I saw many lawyers invest in tax liens (especially in Baltimore) - and they really bid down the returns to a very low amount. No one was earning anything close to 8% in Baltimore or Washington, DC. Small investors would not be able to compete since the risk and the other fees were not worth the low return. In my example, the lawyers were both, the ones mining for gold and the ones selling services. Much of their return was based on the legal fees they could charge for people redeeming their tax lien, not on the interest since the interest rates were bid down so low (but any interest earned would be a bonus).

That said, the key to success with any business, besides due diligence and realizing that there is no such thing as a free lunch as you emphasized, is to look at all of the ways to profit from what you are doing. No matter how well you have done, if you also received the legal fees for all of the properties that the owners paid off their tax liens, you would have done even better. Again, this is not a criticism of lawyers, but if someone is not one, I would partner with one for future sales.

Very nice post, Brian.

There is always more than one way to skin the cat.

If the lawyers in Baltimore have figured that out, good for them.

I do not invest in MD.

Over the years I have invested and found that there are lots of the tax lien sales as you describe.

Everybody wants to control the market and in some cases, some actualy do.

I stay away from those.

google National Tax Lien and go onto their website and look up the MD laws.

Personally I find it very lucrative.

No stoped up toilets, no bum checks, no bad tenants, no late night calls to fix this and that, get a good check from the government each month and in reality only work about 16 days per year.

Rest of the time my wife and I travel and see this wonderful country.

Good luck TRY it you might like it!

Bill, great posts, and you’re spot on about the tax lien “investors” jumping into the game without any research done. I see them making mistakes at every auction: bidding on properties that aren’t worth the taxes owed or bidding down the percentage of ownership to a point where if a redemption doesn’t occur they will never see a return.

The internet auctions are the worst. It seems like every property goes for 1%.