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Will someone with experience in tax liens (tax lien certificates) investing please
rate the risk, difficulty, and time involved in this endeavor?
— Mark
“I recommend investing in tax liens if you have at least $10K – $15K to get started.
You could start with less but I don’t think it would be worth the time or effort.
“Depending upon what state you are investing in, when you buy tax liens you are basically being
paid a premium interest rate to pay someone else’s delinquent property taxes.
“This is not a very difficult endeavor, but you need to know a little
bit about the procedures pertinent to the particular county that you are investing in.
Usually you can get that info easily enough by accessing the county treasurer’s
website.
“Plan to devote about two days’ time for each tax liens auction you plan
to attend.
“The way to make money from tax liens are twofold, in a direct way.
(There are many other ways in secondary ways, e.g. selling services in this potentially
lucrative investment.)
“One is that you should be able to get a much higher interest rate return on
your investment if you did your due diligence on the property first before buying the tax lien on
it.
“The other is that if they do not redeem by the end of the redemption period, typically you get to
own the house the lien is on. For example, I have bought houses worth $60,000 for about $2,000
in tax liens. I just listed a house for $40,000 in Savannah, Georgia that I paid $11,000 in a
tax sale there last June. That should easily give me a 200%+ profit for my investment. That is how
you can make good money if you do your homework.
“Indeed, it’s unlikely you will get a mansion or a house in a very nice
or posh neighborhood since most of those owners either can afford to pay taxes,
or know how to get out of situations like that long before it gets to that point, though it
does still happen. You just never know!
“As for Federal tax liens, they do NOT always negate your tax liens.
There are very interesting laws about that in different situations. I heard from one
real estate lawyer who specializes in tax sales that it has to do with the fact that when the
country was set up, the counties were the ones vested with the local properties, not the federal
government, or something to that degree, so the tax liens, which are on the property (land), are
superior to IRS liens, which are on the owners of the properties, and not the properties themselves.
However, they do have the right just like the owners, to redeem you by paying the penalties or
interest to cancel your lien. But then you would still earn the high interest rates or penalties in
the situations.
“Actually, that happened with one of my properties in Georgia, and the
IRS was asked if they wanted to redeem, or even collect the overbid, and the tax
collector said that after notification by them, the IRS has 120 days to do either, and that
typically they do not. And in fact, they did not in my case (the only time this had happened to me)
and I went on to own the property. The IRS liens went on with the original homeowners because, as
I understand, they are on the people and not on the property.”
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I can’t speak for Georgia but I can for Florida, where I have considerable experience in tax liens.
In Florida tax lien auctions are held once a year. Bidding is done per property parcel and the bidders ‘bid down” the interest rate. Starting at 18% but often going to 3-4% p.a.
After 3 years you have the right to petition for a Tax Sale. This is like a foreclosure auction. However you will also need to pay off the other possible tax liens on the property. Perhaps from last year, the year before and even t=for years BEFORE you bought your own lax lien.
A tax lien is valid for 7 years, after which it expires worthlessly and you have lost your money.
So if you want to get your money back, you, or one of the other lien holders on that property, needs to file for a tax deed.
If someone else files then YOU must be paid off.
At the tax deed sale there can be many bidders, you do NOT automatically own the property just because you filed for a tax deed. In fact you probably won’t end up with the property.
The bidding starts at the sum of all taxes owed, unless it is a homestead property. Then 50% of the Homestead tax value is added to the minimum bid. Which you don’t get but WILL deter bidders.
If no one bids on the property it can end up with the county, not you.So please check your local laws.
Finally, there are often code violations on the property. These are SUPERIOR to your tax lien. And they can be several times the value of the property.
Tax liens arise because people don’t pay their property taxes, if they don’t care enough about the property to not care if it is sold for taxes, what do you think are the chances they have taken care of the property and avoided code enforcement liens?
EXCELLENT post! Thank you for sharing your valuable knowledge and experience, Norman. As the old saying goes, “if it sounds too good to be true…”
I am from Maryland and worked in the taxsale area for 10yrs. The IRS leins are not release after 120 days. You must make an agreement during your tax sale foreclosure. You must do a tax sale foreclosure to get the house.
Walter, thanks for posting this valuable info.