Real Estate Journal Online

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?

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

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

Arizona property owners who do not live in their Arizona properties will face property tax hikes in the coming year[1]. The state plans to send out affidavits that must be signed and returned by homeowners inhabiting the property in question in order for those homeowners to continue to benefit from a state subsidy that cuts property tax bills by up to $600 a year. Through this affidavit system, the state hopes to eliminate cuts what some experts believe may be a full quarter of rental owners whose homes have been either deliberately or accidentally misclassified as primary residences. Second homes, which experts estimate make up 6.5 percent of Arizona homes, also are ineligible for the tax break.

Critics of the move say that many homeowners will misunderstand or just plain lose the affidavit and end up suffering as a result. However, in order for anyone to retain these tax benefits, say legislators, those people who are “wrongly” claiming the rebate must begin to pay. Otherwise, property taxes as a whole will rise. This could have significant ramifications for the tax lien investing community in the coming year as homeowners and property owners face dramatically increased tax bills.

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

Let us know if you like the looks of Arizona for tax lien investing right now.

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[1] http://www.azcentral.com/business/consumer/articles/2011/03/14/20110314arizona-property-tax-hikes.html

Baltimore attorney John Reiff and two of his law partners fixed bids in Baltimore area tax auctions for more than four years, according to Reiff’s recent testimony[1]. Using a strategy that has been exposed frequently over the past few months, Reiff and his partners used a co-conspiratorial system to buy tax liens at low prices at auction, then collect “millions in fees from debtors.” The investigation of Reiff and his colleagues began after a Baltimore Sun analysis of tax auction bidding showed that while “large numbers of investors participated in annual tax sales, three groups dominated in Baltimore and other counties in the state.”

Maryland is considered a “good state” for tax lien certificate investing because interest rates can be as high as 24 percent with redemption periods as short as six months[2]. While the state does not conduct formalized tax deed sales, more than 24 counties participate in annual sales, which are conducted by competitive bid. By keeping sales prices artificially low, Reiff and his cohorts not only optimized the amount of money they could collect on the liens, but they also prevented the city from recouping the maximum amount possible on the delinquent loans.

Banks and corporate investors represented by Reiff insist that they knew nothing about the price suppression, and Reiff’s testimony does not specify if any of the entities he represented were aware of his actions. Thanks to his testimony, Reiff avoided being charged.

Have you experienced this type of bid-rigging when you participate in tax lien auctions?

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

Let us know about your experiences below.

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[1] http://articles.baltimoresun.com/2011-03-04/news/bs-md-tax-lien-auctions-20110228_1_tax-liens-property-tax-debts-tax-sales

[2] http://www.tax-lien-certificates.com/tax_lien_certificates_maryland_md.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.

While many tax lien investors buy tax liens in order to eventually gain control of the property through the foreclosure process, there are others who just want the lien redeemed so that they can collect the fees and interest on it. If you are a member of the latter group, then it is likely very important to you to invest in tax liens that have a high likelihood of being redeemed. While you never have a guarantee that a tax lien will be redeemed, two types of properties do have extremely high probabilities that this will happen.

Owner-occupied homes are a good bet if you want your tax lien redeemed. This is because the owner of the property is actually living in the property. His or her life is linked to that piece of land and the buildings on it. As a result, the owner has a highly vested and emotional interest in redeeming that lien if at all possible so that they can remain in their home. Of course, sometimes in today’s economy owners do lose their properties to tax liens and tax foreclosures because they simply cannot pay the bills. You can hedge your bets further by taking a good look at the property before you bid. If it appears to be neglected with a lot of maintenance issues then you may have a distressed homeowner situation on your hands if you invest in that tax lien.

Mortgaged properties will nearly always be redeemed as well. A mortgage lender will not want to lose the money that they lent on the home and their option to foreclose simply because the property taxes are not paid. Most mortgage lenders will opt to pay the taxes themselves to keep their lien at the “front of the line.” Of course, again, today’s economy has made this slightly less of a certainty. If a home is deeply underwater or located in an area where the lender has no hope of ever recouping their losses on the house via foreclosure and sale of that house, then they may opt not to redeem the lien.

While there are always uncertainties in tax lien investing – and any type of investing for that matter – you can hedge your bets by doing your research on properties ahead of time and making sure that the situation that the property is in matches a scenario that is likely to give you your desired outcome.

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

If you are reading this blog and learning about tax liens, then you are probably getting pretty fired up about the major opportunities in this real estate investing arena. However, if you live in an area – or wish to invest in an area – that only holds tax lien or tax deed sales once or twice a year (or even less frequently) then you may be wondering how to take advantage of all your new information on tax lien investing. Well, I have some good news: you can buy tax liens after the tax lien sale.

If you just missed the sale and you want to see if there is anything good left on the “roster,” then you can make a bid on any lien that did not attract interested buyers at the sale. You will have to check with your county of specific interest to find out the protocols for learning the locations of properties that are still available and submitting a “bid.” Some tax authorities will take bids from interested parties at any time, while others only take them for a limited time after the sale.

Some counties will also allow you to submit offers on properties by mail. Many tax lien investors who do this work with local real estate agents to insure that they are buying liens on good, viable properties since they cannot access those properties in person to evaluate them. As with buying tax liens “over the counter,” this method may be available to you at all times or it may only be available during certain periods of the year or for a certain length of time after the tax lien sale has concluded.

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

Let us know how you like to buy tax liens below.

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 an effort to make property taxes more manageable – and collectable – many counties around the country have moved from a single deadline for all property taxes to two or even four quarterly deadlines throughout the year at which homeowners can pay portions of their taxes. In Tuscawara County in Ohio, the move seems to be working. However, for those who fail to pay their taxes, the county will not hesitate to act[1].

Many local governments have hesitated to foreclose on homes via property tax liens or utility bill liens because the move is so extremely unpopular in today’s economy. For many people, property taxes have been the least of the problem. However, in Tuscawara County, adding multiple payment periods and preparing to enforce collections is paying off, with “only about $1.5 percent” of the total taxes due for payment in 2010 are now past due to the point of being pursued for foreclosure (delinquent for a year or more).

Now, that “only 1.5 percent” does equal a combined total of $1.18 million, which is why the county treasurer is actively pursuing payment contracts for property owners who are delinquent and promptly pursuing foreclosure for those who do not or cannot set up alternate means to make up the delinquency. It’s important that people realize they have to pay their taxes,” said Jeffery Mamarella, the county treasurer. It appears that this type of fast action is working well as deterrent at least in Tuscawara County’s case.

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

Do you find that the deals are better in places that foreclosure regularly and swiftly or in places where tax delinquencies are permitted to pile up?

Let us know what you think below.

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[1] http://www.timesreporter.com/news/x1040067793/Tuscarawas-County-steps-up-tax-collection

While it might not have been quite as exciting as tax auctions used to be, owners of properties with delinquent property taxes are probably loving the newer, quieter, computerized bidding system that enabled tax lien buyers to quietly punch in bids on their personal keyboards rather than shouting them out and struggling to be heard[1]. The average bid at the Madison County (IL) tax auction was “just under four percent,” reported treasurer Kurt Prenzler, who ran on the promise to use this computerized system in his tax sales moving forward in order to “provide better accuracy and less chance for collusion or fraud.”

With less excitement and confusion came lower bids – including a number for zero-interest in hopes of collecting 12 percent in the second year of delinquency – and a chance for a nap on the part of at least one observer. Prenzler considered the auction to be a success, however, particularly in light of his predecessor’s controversial approach to tax auctions which, according to many observers, including picking winning bidders “more or less at random.” Using the new computerized system, results of bidding were displayed on a screen in the front of the room while tax buyers each sat quietly with their own laptop and entered their bids on their personal computers.

Do you think that computerized auctions will improve the way that tax liens are sold?

Thank you for reading REJournalOnline’s Tax Deeds Newsletter.

Let us know how you feel about computerized auctions below.

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[1] http://www.thetelegraph.com/news/tax-50927-bids-brings.html