Tax Leins / Tax Deeds

What do you need to know about Tax Liens?
Tax Liens can yield some great rates of return; in many cases, these yields can be 18 percent per annum or greater. In the event the delinquent property owner does not redeem within the time provided for redemption, the holder of the tax lien can obtain title to the property. Tax Liens can provide a new world where the profits are guaranteed no matter what the conditions of our economy, mortgage interest rates, real estate values or any other factor that can effect real estate profits. Tax Lien Certificates are a first position lien on real property. Why don't property owners pay their taxes? There is no one answer to this question. It could be a lot of different reasons: death, loss of job, divorce or just poor money management. State governments can generate immediate cash flow by use of tax lien certificates. A Tax Lien Certificate is a lien against a piece of real estate, which is created when a property owner fails to pay property taxes. All other mortgages and liens are secondary to a Tax Lien Certificates (except IRS liens in some cases). Tax Lien Certificates are a first position lien on real property. Typically, Tax Lien auctions are held once a year. If an owner doesn't pay his real property taxes (with any interest, penalties, and charges due), the county treasurer will sell the right to collect those sums to investors at a public oral bid auction sale, a so-called tax lien or tax certificate sale. The property is not sold, only the right to collect the delinquent taxes is sold. Every year property owners are given a specific amount of time to pay their property taxes. The state government determines the redemption period for every county in the entire state. It is extremely important to know your tax lien verbiage when talking with county officials. In almost all tax certificate states, all certificates are sold only for delinquent real property taxes together with any interest, penalties, and charges due, together with costs of sale. For a property ranging from $20,000 to $100,000, these sums could be in the $200.00 to $1,500.00 range. That could be an affordable investment! There are liens available throughout the country ranging from $65.00 all the way up to hundreds of thousands of dollars. You could receive substantial returns on your investment. It does not take a lot of money to start investing in Tax Lien Certificates. If you can afford dinner and a movie, you can afford a tax lien. What happens if your $200.00 or $1,500.00 investment isn't repaid with interest? Every tax certificate purchased is secured by the real property on which the investor paid the delinquent real property taxes. Each tax certificate is secured by an assignment of the county's real property tax lien against that real property.

In every tax certificate state, that real property tax lien is a so-called "priority lien." That is, the priority of the real property tax lien is not based upon the date and time it's recorded at the county clerk/recorder's office. By law, the tax lien is almost always the first lien against the property.

Since that first lien secures only what you paid for the tax lien certificate (delinquent taxes, interest, penalties, charges not paid by the owner, and the costs of sale), and since those taxes and penalties can be as little as just 1% of fair market value of the property, you're talking about extremely low loan-to-value ratios when securing financing.

Put another way, there could be a 90% plus equity cushion in the property. That's fantastic equity! The property owner must pay off the amount the investor paid for the tax certificate together with interest (redeem the certificate) or risk being foreclosed upon. Depending on the state, if the certificate isn't redeemed within six months to three years of the date of tax certificate sale, then the certificate holder can foreclose on the lien.

Interestingly, in every tax certificate state except Florida, that foreclosure process does not involve a public oral bid auction sale. In most certificate states, the certificate holder goes through an administrative process of applying to the county treasurer for a treasurer's deed to the property.

In the other certificate states, the certificate holder must go into court, obtain a court judgment foreclosing out the right of redemption (tax lien foreclosure process,) and then apply to the county treasurer's office for a treasurer's deed.

Again, except in Florida, the process of administratively applying for a treasurer's deed or judicially foreclosing out the right of redemption and then applying for a treasurer's deed does not involve a foreclosure action sale. Upon obtaining a treasurer's deed, the investor gets title to the property only for paying the back taxes, penalties, interest and foreclosure costs the investor paid on the property!

An affordable opening bid: Basically, just back real property taxes. No other kind of real property foreclosure process consistently offers anywhere near such an affordable opening bid!

Substantial equity: Almost always upon acquisition of the tax certificate, over 95% of the property's value is equity. Again, no other kind of real property foreclosure process consistently offers anywhere near that much potential equity!

No one else shows up at the foreclosure auction sale to overbid you: In all certificate states, except Florida, by law no one else can show up; there is no foreclosure auction sale. In effect, you, as certificate holder, can be the only bidder! There is no other foreclosure process where you can hold a foreclosure sale and no one else is allowed to attend! The county handles the foreclosure process for you!


What do you need to about Tax Deeds?

Tax deeds are one of the two ways that the government handles delinquent property taxes. Tax deed sales are where you can buy property free and clear at bargain basement costs. The winning bidder gets a deed to the property and the government is able to continue with its day-to-day operations. Almost all local governments are millions of dollars in debt. Without these delinquent property taxes, the governments cannot fund a number of services including maintaining hospitals, roads and public schools. As one means of generating lost income from delinquent taxpayers, county governments offer tax deeds to the public. Tax deeds are sold at tax deed auctions that are available to the public. The owner and all lien holders have been given ample time to respond and are told that their property will be sold if due taxes are not satisfied. The tax deeds can then be sold for as low as ten or twenty cents on the dollar.