Tax liens and cancel mortgages

Im new to the tax lien scene so I wanted to start of buying tax liens owned by the city first. While Im doing the due processing I keep seeing a lot of cancel mortgage, How can that effevt the lien holder?

A lien for unpaid real estate taxes is granted a super priority status for 18 months from the date of assessment. Since all taxes must be assessed on April 1, that means until October 1 of the next year. This obligation jumps ahead of any and all mortgages, even those taken out years before the taxes are assessed. If the taxes remain unpaid, the property can be deeded by the tax collector to the municipality, and the lien of the mortgage is extinguished. That is why many financial institutions collect money for taxes in an escrow account each month in order to ensure that these taxes are in fact paid. That is also why a failure to pay taxes when due is a breach of the mortgage covenants and can itself be cause to commence a foreclosure.

The mortgage company is like an owner of the property. They receive notification of the taxes due, and can redeem the taxes to avoid foreclosure. If the property goes through tax foreclosure (i.e., to deed), you own the property. However, in some states there is a legal period following foreclosure during which the previous owner (or mortgage company, lien holder, etc.) can challenge the sale. Otherwise, tax foreclosure wipes out the mortgage and most other liens, except federal IRS liens and county or city assessments. In New Mexico, mortgage liens may not be extinguished. In Pennsylvania, mortgage liens are not extinguished on properties sold at the Upset Price Sale. Properties not sold at the Upset Price Sale are auctioned again, free and clear of liens (including the mortgage), at the Judicial Sale.

Be aware…TAX LIENS DO NOT GIVE ANY FORM OF OWNERSHIP WHATSOEVER.

At a tax lien sale you are merely paying the taxes for someone in exchange for the possible interest and penalties.

Property taxes are, in MOST states, the most senior lien agains the property. There are few, BUT, in some states certain liens may not be wiped from title by a tax sale.

The IRS will in ALL states have an automatic 120 right of redemption period.

Every state that I know of has a redemption period. The time in which the property owner OR anyone with an interest in the property can step up and pay the taxes and penalties.

There is a BIG difference in tax liens and tax deeds.

If you buy a tax lien and it matures to you, then the taxing jurisidiction will issue you a tax deed. This is normally a form of quit claim deed.

You will not have clean clear title.

To clear title you will have to go through a quiet title suit in court.

The most common defense against this is “Your Honor, I was not properly notified.”

The courts lean heavily toward giving the proertyback…They do not like to take the property for ths simple mistake of not paying the taxes.

This is NOT a get rich, get property for pennies on the dollar situaton that you see on late night TV.

You can get severly burned in ths just like any other business in which you do not know what you are doing.

I strongly suggest you do your due diligence BEFORE getting in.

Bill H is correct. This is not a way to acquire property. What it does do (in Texas) is allow you to pay the taxes and when the owner redeems the property which they always do on property that is worth redeeming you get 25% on the money you used to acquire the lien plus the cost of maintaining the property. That is guaranteed return. If the property is not redeemed you must not allow the land to lay fallow. This means that if you have acquired an orchard you must harvest the apples. The proceeds go to you. If it is a house you must keep it rented and again with the proceeds going to you.

What ypu should also be aware of is that Texas IS NOT a tax lien state.

It is a TAX DEED state and at the end of the auctin in about two weeks later you will actually receive a deed to the property.

The property it then yours to do with as you see fit SUBJECT TO THE OWNER’S RIGHT OF REDEMPTION which may be up to 2 years depending on the type of property and homesteac, etc.

CAVEAT EMPTOR on any improvements or changes you make…you will NOT get your $$$ for these back if the property is redeemed.

As in all states the IRS will have an automatice 120 day Right of Redemption.

The motivation behind paying off a tax lien is not to obtain property but rather to make a profit on your investment. In most cases, the property owner will reimburse you for the taxes paid plus a nice hefty interest payment. You should look at tax liens as buying a CD with a future maturity date. The only difference here is that you make money on a tax lien.

If you are looking to acquire cheap real estate then the mortgage foreclosure market maybe a better route. Another option is to locate abandoned homes or those whose owner’s are out of state and make an offer.

Bill, can you explain what it means that the IRS has a 120 day Right of Redemption? Would that mean your certificate or deed would be worthless?

You can also get 50% if they redeem it after the 6 month period

Bill, can you explain what it means that the IRS has a 120 day Right of Redemption? Would that mean your certificate or deed would be worthless?

Federal law trumps state law. All the 120 ROR means is that for 120 days following the maturity of the lein or the tax deed the IRS has the right to redeem

Their, the IRS’s, right to redeem is not controlled by the state.

Should they chose to redeem it works the same as if the owner redeemed.

No, your tax deed is not worthless…it just got redeemed and you get the interest and penalties.