Tax lien investors know that the holder of a mortgage on a tax-lien compromised property can be a friend or a foe. If you are hoping to have your lien redeemed, then a mortgage holder is a friend. After all, they would probably rather pay off your tax lien – with interest and penalties of course – to avoid losing their larger investment in the property. On the other hand, if you are hoping to foreclose on the property, a lender holding a large mortgage can be bad news since they will likely prefer to take a loss on the tax lien and foreclose themselves.

If you want to know ahead of time what the debt situation is on a property, you can easily check out the situation at the county courthouse. Liens on properties are matters of public record, meaning that you can simply contact your county recorder or city clerk to find out where a property stands. Generally, the more mortgages on a property, the less likely that all those lenders will opt not to pay off the lien. Use this information to help determine what properties will work best for your personal tax lien investing strategy.

How do you identify prime targets for your tax lien investing?

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A businessman protesting the fines associated with overdue property taxes attempted to pay the tax and the fines in pennies the other day, resulting in the refusal of his payment[1]. The businessman, whose business was struggling in April, when the original $34.00 payment came due, said that he did not have the money to pay his bill at the time. To protest the additional late fees and penalties assessed by his opting to wait four months to pay, he paid the original bill and the additional $296.00 in fees with bucket loads of loose pennies. The county treasurer refused the payment, saying that the county did not have the staff to devote to counting the change. Other payment arrangements have been made, although the property owner claims that he may end up losing tools he needs for his work in order to pay the late fees.

Do you think that property tax fees and penalties should ever be waived? Would you do so on a lien that you owned?

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In a small town in Ohio, the school system is going to get a serious boost this year. Their recent tax lien sale – the first ever in the county – is expected to yield nearly $100,000 by the end of the week as buyers pay the remainder of their bids and take full possession of their tax liens. Since the delinquent liens have a direct impact on the local school system’s budget, the town is eagerly awaiting the final numbers so that the schools can get to work distributing the much-needed funds[1].

Some of the tax liens sold were from as long ago as 2006. Do you think it is necessary to wait that long to sell off this type of debt, especially when it directly impacts the local educational system?

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A Montana County plans to try one last time to sell a 10-acre piece of property that it acquired via an unredeemed tax lien before it simply opts to “hold the property until such time as it significantly appreciates in value”[1]. The county originally acquired the land parcel, which is unzoned and the former site of an ethanol plan, because the company that owned the land defaulted on its property taxes. In 2009 the local government tried to sell the property at an appraised value of $240,000, but was unsuccessful. Now the land appraises at $75,000 and will go up for auction with this as a minimum bid because the county cannot take an amount less than the appraised value for a tax deed property owned by the county.

In this case, it is unclear whether or not the county could have originally opted to let another buyer pay the delinquent taxes and take over the lien and eventually the deed. However, it appears that the local government – and a small one at that – is now going to take a big hit because of its complicated tax deed regulations. Do you think that this type of legislation is necessary, beneficial and/or appropriate?

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Many people have been writing into the blog asking about how to get started investing in tax liens. One of the first things that you will need to do is to get familiar with your location options for investing. While it would be nice if you could just invest in your own hometown, that may not always be the best option for you. Not every local area has tax lien auctions, and even those that do may not have the right properties for your investing strategy.

If you find that you need to look further afield for your tax liens, then you should evaluate the areas in which you decide to invest based on how advantageous their tax lien procedures and regulations will be to you. For example, there are some really big advantages to bidding on tax liens in Texas:

1. Texas has tax lien sales each month
   Many states only have them a few times a year, or wait until they have a certain number of liens in default before having an auction.
2. Texas charges a 25% penalty instead of interest.
   This means that it is not interest that is bid down, and that it is assessed on everything: premium and costs associated with administration.
3. Texas has a short redemption period.
   Unless the property in question has an agricultural or homestead exemption, the property owner has only 6 months to redeem the lien before you can start the foreclosure process.

As you can see, a state with regulations like those in Texas is ideally suited for tax lien investors whether they hope to simply redeem the lien or take over the property. In the coming weeks, we will talk more about other states that are ideally and not-so-ideally suited for tax lien investing.

Where is your favorite place to invest in tax liens?

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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.

Do you invest in states with minimum penalties?

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In hopes of getting homeowners to actually pay their property taxes rather than just giving up entirely, a township in New Jersey has reduced the interest rates for delinquent taxes by a full 10 percentage points on properties that recently had received revaluations that dramatically increased their value[1]. Previously, the first $1500 had held an interest rate of 8 percent, while amounts exceeding $1500 were taxed at 18 percent. Now the entire bulk of the lien will garner interest at a rate of 8 percent.

It appears the main incentives for this adjustment were:

1. To provide relief for taxpayers so that they could afford to pay their bills.
2. To make up for some egregious errors that took the form of substantial overbilling on some properties.

Do you think that this change in interest rates is a good idea?

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A few months ago, we covered what appeared to be the pending demise of an environmental program designed to help homeowners install energy efficient equipment like solar panels in their homes. The cost of the money for installation would be paid by the city and repaid by the homeowners over a 20-year period via property tax assessments[1]. Unfortunately, Fannie Mae and Freddie Mac have killed the program for good.

At the time of the original article, it appeared that the giants would refuse to purchase mortgages on homes with these improvements and related liens because tax lien law says that a property tax lien is superior to a mortgage. Should the homes go into foreclosure, the purchase and payoff of the tax lien could result in the mortgage holder not being paid off. While Fannie and Freddie have not officially refused to purchase mortgages on PACE properties, the controversy has caused nearly all orders to be cancelled or put on hold. While Congress may force Fannie and Freddie to accept properties with these liens, at this point in time a number of areas are simply developing alternative programs to spur interest in green energy.

Would you buy a home with a PACE lien, or would you buy the PACE lien itself?

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Until about two years ago, only the 12 largest counties in Ohio could sell their tax liens. However, the state legislature extended this privilege to all 88 counties nearly 2 years ago, and now the counties are starting to take action [1]. While it appears that many of the counties have put off hosting such sales, now it is hoped that the results of the sales – many of which will probably ultimately result in a change of ownership of abandoned properties – will help keep the school districts running smoothly and resolve the issue of falling down houses and deteriorating properties and property values.

In Ohio, the interest rate for tax liens starts at 18 percent and is bid down during the bidding. You must have a tax ID number and 500 dollars in cash for a deposit that you can get back if you do not buy. Lien holders can foreclose after a year-long redemption period.

An expansion of tax lien sale options is good news for tax lien investors! Are you noticing that there are more counties in your focal area that are now conducting these auctions?

Thank you for reading! Your comments and questions are welcomed below.

[1]http://www.irontontribune.com/news/2010/aug/17/sale/

When a homeowner declares bankruptcy, then you may as well sit down and take a load off because you could be waiting on the redemption of your tax lien for a while. In fact, since a bankruptcy filing stops all foreclosure proceedings and generally includes an automatic stay (this means creditors can no longer pursue redress for their debts at this time), you will have to start over with a foreclosure later or you may simply have to wait until a judge decides how, when and if you will be paid.

However, just because a homeowner has entered bankruptcy does not mean that your lien is lost. In fact, in some cases a judge may decide that the amount of equity in the property merits a “relief from the stay” for you, meaning that the property will be foreclosed upon and sold to satisfy your debt and the debts owned by others. While this may not be what you had hoped – after all, it’s possible that you wanted to control the property rather than just have the loan paid back – it is certainly better than losing your investment all together.

If the owner of a property on which you own a tax lien files for bankruptcy, you will usually have 20 to 30 days to file your own petition for a relief from the stay so that foreclosure proceedings can go forward. If the home has significant equity, then it is likely that your petition will be granted. You are most likely to be successful in this case if there is also a mortgage debt on the home, since judges may decide otherwise that the equity you gain from your tax lien will be more than is appropriate given the amount of your original investment.

Do you think this process is fair to tax lien investors?

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