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In Marion County, Indiana, tax lien sales are used to help the county government recoup losses when property owners fail to pay their taxes. Unfortunately, the system is “backing up” as unsold, delinquent properties pile up debt and fail to move at the auctions[1]. For example, one structurally unsound, vacant motel property has outstanding taxes in the sum of $70,000. Not surprisingly, it did not sell at the last auction and now must wait until a tax surplus sale in order to have its debt cleared and be offered at a more “reasonable” price. Furthermore, if the properties appraise high enough, then the city-county council in the area may opt to refuse to approve a tax title deed, which erases back taxes and liens before the auction so that buyers can bid directly on the property. Of the 3500 properties currently in the surplus pool, probably only 200 or so will be included in the tax surplus sale.

Many tax lien investors like surplus sales because they can get steep discounts on properties and buy the deeds directly rather than buying tax liens and then waiting months or years to redeem the liens or foreclose on the properties. However, the value of these properties is likely to fluctuate far more, making these purchases higher risk in some cases since they may be damaged or otherwise “handicapped.” Do you personally like tax surplus sales?

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Let us know what type of tax lien or tax deed sales you like best.

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[1] http://blogs.indystar.com/starwatch/2011/03/18/3500-properties-waiting-for-tax-surplus-sale/

Georgia’s Fulton County is notorious for its tax sales. There are few places in the country with more “homeowner horror stories” about massively inflated tax bills, loss of homes by the elderly and infirm and county corruption causing officials to actually work for tax lien sales versus tax lien redemption. However, the state senate hopes to help resolve this with a new bill that will insure that homeowners receive “proper notification of the status of their tax bills” and that will alter how counties can use the lien and foreclosure process to collect delinquent taxes[1]. Not surprisingly, this has created an uproar throughout the state as counties – Fulton and others – in the area that are already struggling with their operating budgets fear that the bill will actually prevent foreclosure on properties with massively delinquent taxes. State senators have assured critics that the wording will be changed to “affect only the practice of selling tax liens to private companies and not the collection of taxes by the counties.”

This sounds like bad news for tax lien investors in Georgia, particularly when you bear in mind that some proponents of the bill actually believe that tax sales are “an abdication of government’s taxing authority and should be banned by law.” Critics on both sides agree that the current wording in the bill basically only benefits homeowners who want to avoid paying their taxes and could create more collection problems for counties or anyone else holding a note.

Do you think that in states or counties with massive corruption in their tax lien or tax deed systems (think of Fulton County in Georgia or Madison County in Illinois) should be prohibited from holding tax sales until their issues are resolved?

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Let us know what you think of this new legislation below.

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[1] http://www.ajc.com/news/senate-bill-tackles-sales-861387.html

In Madison County in Alabama, about 176 property owners had their properties sold at a tax lien auction on the courthouse steps last year. However, just because someone else had those liens in hand did not mean that the properties were lost to their former owners or that the former owners would necessarily pay hefty interest and fees. That is because in Alabama, property owners whose delinquent property taxes have led to the sale of their properties at auction have five days from the date of the auction to pay their taxes. In Madison Country, that means that only about 1 in every 2,000 delinquent property owners actually loses their home in an auction because most owners pay their property taxes once they are notified that the property has been sold[1].

Lynda Hall, the county tax collector, says that her office in particular goes “the extra mile” to reach people and give them every chance to pay their property taxes. In fact, last year of the 3, 196 property owners originally on the delinquent tax list, only 176 properties ever went to auction. Auction buyers who buy liens that are redeemed by owners receive a refund, or the original owners have three years to redeem the lien by paying the auction buyer for the note and interest.

Given the massive lengths Hall goes to in order to reach delinquent owners, this seems that Madison County liens that actually make it to auction might be a better risk for investors than those in other states or counties. Would you invest in tax liens in Madison County, AL, or aim elsewhere?

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Let us know your favorite tax lien investing spot in the space below.

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[1] http://blog.al.com/breaking/2011/03/post_579.html

One of the best things about tax lien investing is that it is one of the most secure forms of real estate investing. In fact, some “gurus” actually go so far as to call tax lien investing “guaranteed” investing. This is because a tax lien usually takes precedence over any other lien on a property, meaning that you are first in line to either get paid for your note or foreclose on the property. However, there are a few scenarios in which your “top dog” status may be challenged.

One such scenario occurs in states that reserve top lien status for their own liens. This is the case, for example, in Arizona. In Arizona, tax liens are considered to be “prior and superior to all other liens and encumbrances upon the property except liens and encumbrances held by the state.” This is not that big a deal as long as you are aware of the rule. Basically, if you purchase a tax lien on a property that is also encumbered by a state-owned lien, you are not first in line. You should check ahead of time to make sure that either:

1. There is not a state-owned lien on the property, or

2. There is enough value in the property to allow for collection of the state-owned lien and your lien. (In today’s real estate market, this second option can be risky since property values are very uncertain in many markets.)

Of course, every state has its own unique guidelines for how tax liens are dealt with. It is your responsibility as a tax lien or tax deed investor to make sure that you are prepared with all of the relevant information on state-specific guidelines before you bid on or purchase a tax lien or deed.

Thank you for reading REJournalOnline’s Tax Deeds Investment Newsletter.

Please leave your comments or questions below.

Yesterday, the San Francisco Board of Supervisors unanimously approved a plan to auction off properties of city tax evaders[1]. However, they’re going to be nice about it. Last May the city notified 117 private property owners that if their local taxes were not paid, their properties would be sold at auction[2]. The city plans to do so – with minimum bids starting at the amount of delinquent taxes and other fees owed – but anything in excess will be turned over to the delinquent former property owner. City officials expect the sale to bring in $1.1 million. Property owners can pay off the debts up until the day of the auction.

More and more cities that have previously avoided tax auctions and tax foreclosures are now holding these events in order to bolster their budgets. Are you as a tax lien or tax deed investor benefiting from this change?

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Let us know how you feel about the increased volume of tax lien and tax deeds auctions and what it has done for your business.

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[1] http://www.nbcbayarea.com/the-scene/real-estate/SF-Plans-to-Auction-Off-Tax-Evaders-Homes-117247548.html

[2] http://sf.curbed.com/archives/2011/03/02/we_need_the_money.php

Tax lien investors who bid on liens for the purpose of making money when those liens are redeemed often want to avoid states in which bidding is accomplished not by declaring a stated amount that one will pay for a lien, but rather how little interest one will accept on the debt. After all, if a lien is “bid down” to a very low interest rate then a tax lien investor will collect less money when that lien is redeemed by the homeowner. Bid low enough, and the lien is not worth the trouble.

In order to attract tax lien investors to their auctions, states that use a bidding-down structure for their property tax auctions may install a “safety net” to keep investors interested in their properties. This safety net takes the form of a minimum penalty to the owner when the tax lien is redeemed. For example, Florida has this type of safety net: a minimum penalty of 5%. This means that if you bid on a tax lien in Florida and you win with a bid of 3% interest, then you will get an additional 5% interest on that lien as a minimum penalty. Of course, you will need to check the fine print. There may be rules governing how long the lien must be delinquent before the penalty kicks in or even on how much of the lien can be assessed for a penalty. Either way, however, the investor will get more than just the low initial interest bid.

Thank you for reading REJournalOnline’s Tax Deeds Investment Letter.

Let us know where you like to invest and why below.

In Des Moines, the local school board faces a potential $6.8 million shortfall in their budget for the coming school year. The sum is staggering enough that even the board’s citizen advisory committee is considering property tax hikes to resolve the problem[1]. While most members hoped to increase district property taxes somewhere between $1 and $2 million, some members want to make up the entire deficit through tax increases. “Whatever is paid by the average citizen in property taxes is very minute compared to all they pay. Property taxes are not high,” explained one board member. However, the majority of the committee wanted a lower rate of increase.

The property tax hike is the most preferred option over other options like mandatory furlough days, firings, frozen wages and reduced benefit packages. However, even if the committee is “very careful that we talk about shared responsibility for the education of our children,” members fear a strong backlash from community property owners already struggling with finances. However, as one committee member pointed out, “If the community of Des Moines doesn’t want to ante up for their school, then what’s going to happen to their property values?”

If the tax increase proves untenable, then the area could see more tax lien certificates for property going up for sale in area auctions. In Iowa, the redemption period is 21 months on tax liens and the liens can accrue up to 24 percent interest. County tax lien sales occur in June.

As a tax lien investor, do you monitor your target investing areas for property tax increases?

Thank you for reading REJournalOnline’s Tax Deeds Newsletter.

Tell us your favorite strategy for spotting areas primed for tax lien investing in the comments area below.

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[1] http://www.desmoinesregister.com/article/20110220/NEWS/102200340/Property-tax-hike-favored-to-plug-Des-Moines-school-district-s-budget-hole

In Illinois, tax lien auctions will now be taped as part of an initiative to “guarantee fairness” at local tax auctions. The bill, proposed by state senator Bill Haine, includes legislation to require that all tax sales be videotaped and that will prevent bidding from culminating in a tie[1]. Illinois auctions have faced scrutiny recently due to practices that allegedly “discouraged free bidding at lower rates.” Lawmakers are concerned that there is no policy in place permitting auctions to be reviewed, and believe that the mandatory tapings could help resolve the issue.

The impetus for the bill is a controversial investigative report by the Bellville News-Democrat that alleged that a former county treasurer was conducting tax auctions in such a way that liens could be arbitrarily awarded to bidders at higher interest rates than might have been appropriate[2]. In Illinois, bidders “bid down” the interest rate on the liens and the lowest bidder gets the lien. However, in Madison County, Fred Bathon allegedly was simply starting the bidding and then awarding liens to whomever appeared to have shouted out “18 percent! [the max interest charged in Illinois on tax liens]” first.

Interestingly, in addition to increasing transparency of the process through taping, the new legislation allows for taxes to be “forfeited” if there is a tie between two bidders.

Do you think that this is a good bill or should the Madison County case be handled individually rather than through statewide legislation?

Thank you for reading REJournalOnline’s Tax Deeds Investment Letter!

Please leave your comments and questions below.

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[1] http://www.bnd.com/2011/02/11/1586935/legislation-seeks-to-tighten-up.html

[2] http://www.bnd.com/2011/02/10/1585369/reporters-to-receive-award-for.html

While many advocates’ groups in Detroit, Michigan are currently engaged in trying to keep real estate investors who purchase large volumes of property in tax lien sales out of the city and preferably away from the auctioneer, Wayne County commissioners endorsed a plan yesterday that is a little more investor-friendly than many of the recent proposals. Under the proposed legislation, any individual or company whose property taxes are more than two years behind cannot participate in tax auctions[1]. Bernard Parker, commissioner who proposed the ban, says that he hopes that this will “stop speculators who are buying property with no intent to maintain the property or pay the taxes” without interfering with the real estate investors who are buying in good faith. “I have no problem with someone taking a chance to make money,” said Parker.

Critics of the plan argue that tax delinquents can simply create a new company and continue to buy property in the area. However, the strategy does allow for investors buying in good faith to continue to inject needed housing stimulus into the area. Do you think this is a good compromise for Wayne County, or are more aggressive measures needed?

Thank you for reading REJournalOnline’s Tax Deeds Newsletter!

Please leave your comments and questions below.

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[1] http://www.freep.com/article/20110209/NEWS01/102090386/Wayne-County-Commission-panel-bans-tax-delinquents-from-house-sales