Indiana Commissioners Sales – Traps and Downsides
In Part One of this series on Indiana Commissioners sales, we went over the benefits of participating.
In a nutshell, the benefits were:
1. Shorter redemption time (120 days vs 1 year)
2. Reduced minimum bid
3. Much less competition
4. Much greater chance of acquiring property
5. Sales often held online
These unique features take away most of the most negative aspects of the regular sale. The shorter redemption time and lack of competition are the two biggest advantages.
Indiana Commissioners Sale Downsides
Liens purchased at Indiana Commissioners sales still share many characteristics of “regular” tax liens. Here are some issues that you’ll have to deal with when investing, that are common to any tax lien investing:
1. Due Diligence As with any tax lien investment, it remains important that you perform due diligence on the liens offered. Mainly, this consists of assessing whether the underlying property is profitable, and making sure that the lien offered is against the same property you believe it is.
For example, a lien on the list may show an address of 3388 Elm St, and you may notice a nice house at 3388 Elm St. However, when you look at an aerial map or GIS of the property, you may discover that the actual parcel being offered is a worthless side lot or garage next to the property.
2. Post-Redemption Period Wait Times – Once the redemption period ends, you know you’ll obtain the underlying property if you have not been paid off. However, some counties “move at their own speed” when it comes to actually issuing your deed. This can add months and months to the overall wait time before you get the property, easily exceeding the redemption period itself in some cases.
It’s probably a good idea to look at past Indiana Commissioners sales in each county, and noting the date of sale and date most of the deeds were issued. This will give you an idea of the wait time you might expect.
3. Unknown Interior Condition of Properties – As with all lien sales, the owner of the property is not going to welcome you inside to assess the property condition prior to the sale. You’ll have to do your best to assess overall condition from the outside.
Here’s what I’ve noticed – if a property is well-kept outside, it’s somewhat more likely (though far from guaranteed) to be OK on the inside. However, if the property is very dumpy on the outside, it’s almost certainly dumpy (or worse) on the inside.
We have ways of dealing with this, as you’ll see in Part 3.
4. Unmarketable Title – When you get a tax deed in Indiana, you cannot give a buyer title insurance on the property until you perform a “quiet title action”. This is a legal process that basically confirms the tax sale’s validity and costs $500 – $1000 and takes several months.
Most buyers will not buy without title insurance and therefore will not buy without quiet title.
Let’s look at “negatives” particular to Indiana Commissioners sales:
1. Lower Quality Properties – This is the main drawback. Most of the very best properties are sold in the first treasurer’s sale. The houses that are left at Indiana Commissioners sales are often from the “rougher side of town”. However, they can make great rentals, as you’ll see in Part 3.
There will be many, many worthless properties on the Indiana Commissioners sale list that you wouldn’t even want for free.
2. Due Diligence – You will have to do a lot more due diligence per suitable property you identify – because you’ll be sorting through a lot of bad ones.
3. Legal Expenses – As with all tax lien purchases, you must get a title report and quickly give the owner and lienholders notice that you’ve acquired a tax lien against the property. Here you have to do it lightning quick, as soon as you buy the lien. The notice must be received well before the redemption deadline, and with only 120 days, that pushes the deadline for notice to the beginning.
Also, because you’ll be often buying these liens for hundreds of dollars, or only a couple thousand, your legal noticing expenses can EXCEED your investment in the liens! Be sure not to use your entire bankroll to buy the liens because you’ll often need just as much to pay your attorney to do the noticing. Be sure to figure in $800 or so in reserve cash for the legal fees, and add that amount to the amount of the lien when determining whether to buy it or not.
You’ll be experiencing wait times after the redemption period of your liens that are largely beyond your control, and you’ll still have to perform due diligence on the entire list. You’ll also be ending up with mostly lower-end properties (don’t let this scare you, be sure to check out Parts 3 and 4). And, you need to budget a legal fee budget that may equal your lien purchasing budget.
These issues are not insurmountable, however. In Indiana Commissioners Sales Part 3 we’ll talk about proven strategies to make profitable investments at Indiana Commissioners sales.
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Sites That Link to this Post
- Indiana Commissioners Sales – Area 2 « The economy | December 20, 2011
- Indiana Commissioners Sales – Area 2 | Getting a bargain | December 20, 2011
- Indiana Commissioners Sales – Element 2 — Taxation today | December 20, 2011
- Indiana Commissioners Sales – Part 2 | Property taxes | December 20, 2011