Category: Tax Lien Sale

Tax Lien Sales: 5 Deadly Traps Lurking Just Below the Surface

Tax lien sales: 5 traps

Tax Lien Sales: Not for the Novice

Attending tax lien sales seems like a great way to get bargain property – and in rare cases it can be. Tax liens certainly offer a decent return on your money. In many cases, you’ll earn up to 25% APR or more.

On the surface, it seems like a win-win situation. You either get a bargain property, or at worst, get a great return on your money.

As someone who has attended many tax lien sales in the past, however, I can tell you that there are some traps you may not recognize until you jump in:

Make sure the actual return you stand to make will be worth your effort. Over 95% of tax liens redeem before the underlying property can be acquired.

Therefore, you must be satisfied with only the interest you stand to make from your investment. And there is a substantial effort required to investigate all the properties on the tax lien list.

If you’re investing only a small amount of money, like $10,000, you will only earn perhaps $1,000 on your investment if all liens pay off. You may have to invest at least $1,000 worth of your own time investigating properties before the tax lien sale, bringing your real return down to zero.

Don’t forget about legal costs associated with acquiring properties. You may need to spend several thousand dollars with an attorney providing notice to the owner and perfecting your deed to the property. In many cases these costs can be more than you spent on the lien itself!

At many tax lien sales, properties with city code violations will be offered. It’s important to check all properties on which you may buy a lien, at the city building inspector before purchasing the lien.

The property could be demolished by the time you acquire it, and/or you may have to immediately deal with the city upon acquiring the property. You’ll want to avoid this or bid accordingly.

Plan to potentially wait much longer than just the redemption period to get your deeds to properties from tax lien sales. It can take several months to a year to get a court date to request your deed and wait for the county to issue the deed.

Then you will almost always have to perform a quiet title action to get martketable title to your property. Factor this in when bidding!

Don’t forget about other bidders attending the sale. In a few states, the price of the lien is bid up until a winner emerges.

In these cases, make sure to set a maximum price you’re willing to pay. In other states, the interest on the lien is bid down – on good properties the interest rate is often bid to zero.

Still other states have a random system for choosing who gets to buy a particular tax lien if several bidders are interested. No matter what the system, establish what you’re willing to pay for a particular lien, and stick to it. You may not be able to buy the exact liens you want and may need to have some alternates picked.

After being a tax sale investor for over 10 years, I can tell you with certainty that tax lien sales are not for beginners or those with only a small amount of funds to invest.

They are dominated by experts who have hundreds of thousands, or even millions of dollars to invest, and who are able to make a significant return from interest because of the large amount of money they have access to. Property acquisition is a very small part of the allure to investing at tax lien sales.

Most new investors investigate tax lien sales as a way to pick up property for a tiny fraction of its value. They are soon disappointed to find out that all of their liens redeem and they are left with a small amount of interest.

However, tax lien sales create a way for us to acquire cheap properties without even participating in the sales – we can simply let the other tax lien buyers fight over the liens, and then close to the redemption period ending, we will look up which liens remain unpaid.

Then, we’ll contact the owners of those properties directly and get the property under contract! Most properties in this situation are free and clear, and are unwanted by the owners. Some will sell for as little as $50 just to get the property out of their name.

Now, we don’t have to worry about investing our own money, legal costs, or code violations (we’ll just pass if we find any, or deal with them).

We don’t have to wait for a redemption period to end, since we’re looking up past tax liens that were already sold. We don’t have to compete with other bidders, or do a quiet title action on the property. Much better.

Get my guide to working tax lien sales a smarter way (below) – “Underground Tax Sale Secrets”.

County Tax Liens: A Good Way to Acquire Cheap Property?

County tax liens help counties recover taxes

County Tax Liens for Acquiring Property?

One of the greatest misconceptions in the real estate investing world is that county tax liens lead to cheap property acquisition. All on an ongoing basis, for pennies on the dollar.

Examples are given on late night TV and other sources of properties worth $30,000 – $200,000, being obtained for as little as a few hundred dollars over and over again. Nothing could be further from the truth.

In the real world, county tax liens on property provide an above-average return on investment. It looks especially good versus traditional guaranteed investments like bank accounts and CD’s. But this is when the investment in the county tax lien is properly managed.

Tax lien gurus often cite that county tax lien investments are “guaranteed by the government”. This is also false. County tax liens are guaranteed by the underlying property only. And only if the tax lien buyer follows proper procedure throughout the process.

In exceedingly rare cases, a county tax lien may go to maturity and lead to acquisition of the underlying property. And in these cases, the underlying property CAN BE worth many times the investment in the lien.

However, the underlying property may actually be worthless, or worth little more than the investment made in the lien itself and subsequent costs.

In order to obtain the underlying property if the taxes are not paid, strict procedures must be followed by the lien buyer.

Therefore, county tax liens are not a passive investment at all. Significant time must be spent prior to the investment, performing due diligence.

Due diligence consists mostly of making sure that any county tax liens purchased are against properties worth at least as much as the investment in the lien and subsequent costs.

Many tax lien lists consists of thousands of properties, all of which must be analyzed prior to the sale.

Because several bidders may want the same group of county tax liens at the sale, there is usually a bidding method at the sale. Either the cost of the lien is bid up, or the interest rate is bid down.

In either case, the investment becomes less attractive as the bidding continues. Not all liens you may desire to purchase will be available for the minimum bid or maximum interest rate.

County tax liens are really only worth getting involved in if you have a large sum (well in excess of 6 figures) to invest. You must also be willing to take an active role in the management of the investment.

An investment of less than 6 figures provides only several percentage points’ difference over a federally guaranteed investment. Therefore only a few thousand dollars difference in return is realized. The added risk and due diligence needed to participate in any kind of tax sale is not worth the extra return.

For larger investments, especially in the millions of dollars, it’s more efficient to do the research and the effort can be worth the while.

At every large sale, it’s inevitable that several properties, or even several dozen properties, will be lost by the owners as a result of the sale.

However, to have a chance at acquiring all of these properties by buying tax liens, you would have to buy every single county tax lien offered at the sale.

In order to actually acquire properties for pennies on the dollar, just stay out of the sale and let all of the other investors buy the liens offered.

Let them do the due diligence and determine which liens are worth investing in (many times 50% or more of the county tax liens offered at a sale don’t even sell).

Then, once the redemption period is about to expire, see which liens are still unpaid. Simply approach any property owner with a lien remaining with a last-minute proposal to buy the property or get it under contract before it is lost.

You’ll save 95% of the due diligence time, and you won’t have to invest any money. You won’t have to follow procedures like noticing. You won’t have to get a quiet title on the property.

You can just get involved at the last minute, and buy unwanted properties for a token amount or get them under contract and flip.

Profit from county tax liens like the pros – get my “Underground Tax Sale Secrets” guide now (below).

Tax Lien Auctions: How to Get 500% More Properties

Going blindly into tax lien auctions and expecting to obtain cheap properties is not something you can expect to happen. The fact is, 93-98% of all tax liens purchased at a tax lien auction will eventually pay off, leaving the investor with only interest and no property.

However, there is a 3-step approach to tax lien auctions that will easily increase the number of properties you obtain by 500% or more.

Step 1: Pre-Sale Intelligence and Marketing

If the tax lien auctions you’re pursuing have a large number of liens offered, make sure to get the list on a spreadsheet along with assessed value of each property. Eliminate those properties that have a very low assessed value – it’s unlikely you’ll be able to make much of a profit from these even if you can get them for free or nearly free.

This will significantly reduce your list size and make it more manageable.

Next, send a postcard to each owner remaining on the list, with a simple “We Buy Property” message. Most investors never think to send marketing to this group of owners, even though they’re some of the most motivated or indifferent owners out there.

When you get calls from this postcard, determine whether the owner is letting the property go, wants to sell, or is trying to keep the property. If the owner says they’re just letting the property go, offer a token payment for the deed and resell the property. Use the buyer’s purchase funds to redeem the taxes and get your profit.

If the owner wishes to sell the property, but at a more significant price, get the property under contract and flip the contract to a cash investor. You’ll find cash investors investing at the tax lien auctions by the way – get the registration lists the county requires from past sales to obtain their names.

The most important part of Step 1 is to save the returned mail you get from your postcard campaign. Make sure you mail the postcards with a proper return address and with a postage level that allows for returned mail (no third class mailers!)

Step 2: Buy the Right Liens at the Sale

In your hands right now are the sellers least likely to redeem their properties from the upcoming auction. You’ve mailed to postcard to the address on file with the county, and that’s the same address the county has been using to try to send the owner tax bills and notices about the tax delinquency. It’s also likely the address to which the tax lien buyer will have to send notices about the tax lien auction.

Since you have a postcard sent back “returned” in your hand, you know that the owner likely does not know about the tax delinquency and will not be able to receive any further correspondence about tax lien auctions involving the property. This dramatically increases the chances that the property will not redeem and that you’ll someday obtain a deed to it if you buy the lien at the upcoming auction.

In our experience redemptions rates for liens with bad mailing addresses are only about 50% likely to redeem.

Another quick check you can do is to run each owner’s name through the social security death index (just google it to find it). Properties still titled in a deceased owner’s name also have only about a 50% chance of redeeming from tax lien auctions in our experience, down from 93-98% overall.

If you don’t have a lot of capital, you can skip the tax lien auctions and go to step 3. But if you do have capital that you’d like to earn 10-20% interest on, and have a great chance of actually getting properties, do everything you can to buy the liens with deceased owners or bad mailing addresses.

Step 3: Buy Properties Sold at Previous Tax Liens Sales From the Owners

Get 5 Times the Houses Using this Technique

Get 5 Times the Houses Using this Technique

Go around to nearby counties and get the sales results from past tax lien auctions. Find out which liens actually sold, and cross off the liens that have paid off in the meantime. This will leave you with a list of active tax liens. When the deadline to redeem is within 1-2 months, aggressively contact the owners left on the list, using skiptracing methods like Intelius if necessary, and get an offer into their hands. Motivation should be high with most sellers to get something out of their property before it’s lost completely.

Using this 3-step method, you should be able to obtain many properties from tax lien auctions, either directly from the auction or indirectly by purchasing from the owner. This is only one of 12 ways to profit from tax deed and tax lien auctions creatively.

Get Tax Lien Properties in Days, Not Years!

Tax Lien Properties Take Time!

Don't Grow Old Waiting to Get Tax Lien Properties!

How to Get Tax Lien Properties NOW

The main disadvantage to trying to acquire tax lien properties is the long wait that goes into a tax lien investment before a deed can be obtained.

Some states have a redemption period as long as 4 years (the time allowed for the owner to pay off the lien).

And, after the redemption period there is often a significant wait time for the deed to actually be issued by the county on tax lien properties. Then a quiet title action must be performed. It’s necessary before you can sell the property with title insurance.

Also, you’ll find that over the course of the redemption period, most tax lien properties will indeed redeem (pay you off). You have a nice interest return no tax lien properties.

I’m about to show you a way to get tax lien properties now, without doing any bidding, waiting, or investing your own funds to buy tax liens.

Several years ago, while attempting to obtain tax lien properties myself, I noticed that 95% of the properties redeemed, and that using all my available cash I could only purchase 10-20 liens each sale. This meant that I only stood to get on property at the most from the sale. In fact, I never got any properties, all my liens paid off.

At the same time, because there were hundreds of liens sold at the sale, indeed there were a couple dozen properties that were lost each year. The problem was, there was simply no way to know which tax lien properties would go all the way to deed, so you just had to get lucky with whatever liens you purchased.

One day I was going over the final results of a tax lien sale that occurred the year before (there was a one-year redemption period which had just ended), and I was looking at all the lucky buyers that had acquired a property or two. There were actually some nice properties on the list that could have been redeemed for less than $10,000 that were worth over $100,000.

It had been several months since the redemption period ended, and I thought to myself “I wish I had been on this owner’s doorstep right before the redemption period so I could have warned them – I could have at least given them some money for the property so they walked away with something!”.

Then it hit me – why don’t I look at all the tax lien properties from this year’s sale, that could still be redeemed for the next few months, and start approaching all the owners who were about to lose their properties!

I did just that. I looked up which liens had sold the year before, and crossed out all the ones that had paid off in the meantime. This gave me a short list of all the owners who were about to lose their property. The original tax lien properties list before the sale was over 10,000 properties. Of those, about 1100 sold at the sale and by the time I got the list 800 of them had paid off. So I had a prime list of 300 properties to really focus on over the next month.

The results shocked me. Here’s what I found:

– Most of the properties were free and clear. I later realized that if a property had a mortgage, it was likely one of the 800 that paid off already because mortgage lenders redeem properties to save their own interest.

– Far fewer of the owners were owner-occupants compared to mortgage foreclosures. Of those who did occupy the property, most had been given the property through an inheritance or other means. To this day I’ve never seen someone who spent 30 years paying off a mortgage and then allowed the property to fall victim to unpaid taxes.
– Many of the property owners were deceased. I soon learned how to get deeds from the heirs and get instant title to the property. Most states have a “small estates” provision that will allow you to get good title to the property without a long, drawn-out probate. Since almost nobody outside the legal profession knows how to do this, you’ll have a tremendous advantage.
– All the properties that “fall through the cracks” end up at a tax sale eventually. Maybe someone was given a property they didn’t want. Maybe someone was sick of paying for repairs and taxes and just gave up being a long-distance landlord. Maybe family members moved into the house and were supposed to pay the taxes but didn’t.

For whatever reason, tax lien properties are the most interesting source of pre-foreclosures you’ll ever find – and the profits can be immense.

Best of all, you can get involved with little risk by either making a token payment for the deed to the property (in the case of someone who tells you they’re letting it go), or by getting the property under contract and flipping to another investor.

Incidentally, investors trying to get their hands on tax lien properties through tax lien auctions are excellent people to assign contracts to – they are proven cash buyers who buy sight unseen, and you can get them a property now with no bidding or waiting, at a bargain price! What could be better?

Tax Lien Foreclosures – The Mortgage Pre-Foreclosure Alternative

Tax sale Foreclosure or Cash?In today’s market, tax lien foreclosures are the new source of high-equity properties going through the foreclosure process.

We’re not going to purchase liens at tax lien sales. We’re just going to follow the classic mortgage pre-foreclosure strategy with a different source of leads!

Mortgage pre-foreclosure investing has been a popular investing method for several decades now. Using readily available public records, investors approach homeowners who are going through the mortgage foreclosure process.

hey then offer to purchase the property or otherwise profit from the situation, preventing many tax lien foreclosures from ever happening.

This was not a bad strategy when prices were skyrocketing in the mid 2000s. Anyone who had owned their property more than a few years likely had “built-in” equity just from the rapid appreciation.

Therefore it was a simple matter to find properties that had equity and get some deals going with the homeowners.

Even when the market was ripe for this approach, there were still problems:

  • Mortgage pre-foreclosure investing was well-known and the competition was fierce
  • Most property owners were owner-occupants who wanted to save their home and continue living there
  • Even though the property may have had equity, there was still a significant mortgage balance in most cases, and a significant arrearage to cure
  • So even though there were a lot of properties the fit the mold for the strategy, it often cost 5 figures to bail out a property from foreclosure.

    Plus, further monthly payments were required until the property could be disposed. Worst of all, you’d find youself dealing with a reluctant participant (the owner/occupant) who really didn’t want to do the deal anyway.

    Enter Tax Lien Foreclosures!

    It turns out that properties can be foreclosed for non-payment of property taxes as well. In many states, a tax lien is sold against a non-paying property.

    Eventually that lien threatens ownership of the property. For liens not paid within a certain amount of time, tax lien foreclosures begin.

    Now, in the majority of cases, the tax lien is paid by the owner or the mortgage company well before the ownership of the property is threatened. This prevents many tax lien foreclosures from ever taking place.

    By the time the tax lien reaches the late stages of maturity, most of the properties left do not have a mortgage. If they had a mortgage the bank would have likely stepped in and paid the property taxes to save their interest in the property.

    When I discovered this phenomenon and began contacting owners who were about to become victims of tax lien foreclosures, I found the following:

  • Few other investors had picked up on this strategy, and there was a little bit of front-end work required to research which properties were close to becoming tax lien foreclosures. I was the only one contacting these owners
  • Most of these owners had inherited the property, or were deceased (I just contacted the heirs if that was the case). In other cases, the owner just moved on in life and didn’t want to deal with the property and keep making tax payments.

    This explained why the properties were free and clear and still entering the tax lien foreclosure process. Most owners did not live in the properties and were not emotionally attached to the properties.

  • Because the properties were free and clear, all that needed to be done was to make a tax payment and there would be no further payments necessary for a number of years.

    This prevented a lot more cash going out the door while disposed of the property. Also, the amount to pay the taxes was usually much less than the typical amount needed to bail out a mortgage pre-foreclosure.

  • If you want to get involved in a risk-free real estate method with motivated sellers and high-equity properties, this is the only way to go. See which tax lien foreclosures are about to take place by looking at past sales and seeing which liens are still unpaid.

    Get the owners of those properties under contract or even buy them out for a token payment of as little as $50. Grab my free report below, and you may soon be known as “the investor that STOPS tax lien foreclosures” in your area.