Month: March 2021

One investment niche that investors often overlook is property tax liens. The increasing volatility of the stock market, combined with still historically low-interest rates, has many investors seeking this alternative avenue to provide a decent return rate. In some cases, this unique opportunity can provide knowledgeable investors with excellent rates of return. Property liens can also carry substantial risk, which means novice buyers need to understand the rules and potential pitfalls that come with this type of asset. This article discusses tax liens, how you can invest in them, and the disadvantages of this type of investment vehicle.

Buyers also need to do their due diligence on available properties. In some cases, the property's current value can be less than the amount of the lien. The NTLA advises dividing the face amount of the delinquent tax lien by the property's market value. If the ratio is above 4%, potential buyers should stay away from that property. Furthermore, other liens may also be on the property that will prevent the bidder from taking ownership. Every piece of real estate in a given county with a tax lien is assigned a number within its respective parcel. Buyers can look for these liens by number to obtain information about them from the county, which can often be done online. For each number, the county has the property address, the owner's name, the assessed value of the property, the legal description, a breakdown of the property's condition, and any structures located on the premises.

Investors interested in locating tax lien investing opportunities should get in touch with their local tax revenue official responsible for collecting property taxes. There are currently 2,500 jurisdictions, cities, townships, or counties that sell public tax debt. While not every state provides for the public sale of delinquent property taxes, if the state does allow the public auction of the unpaid property tax bill, investors should determine when and where these taxes are published for public review. Property tax sales are required to be advertised for a specified time before the sale. Typically, the advertisements list the property owner, the legal description, and the amount of delinquent taxes to be sold.

Investors who purchase property tax liens are typically required to immediately pay back the lien's full amount to the issuing municipality. In all but two states, the tax lien issuer collects the principal, interest, and any penalties, pays the lien certificate holder and then collects the lien certificate if it's not on file. The property owner must repay the investor the entire amount of the lien plus interest, which varies from one state to another—but is typically between 10% and 12%. If the investor paid a premium for the lien, they might add this to the repaid amount in some instances. The repayment schedule usually lasts anywhere from six months to three years.

In most cases, the owner can pay the lien in full. Suppose the owner cannot pay the lien by the deadline. In that case, the investor has the authority to foreclose on the property just as the municipality would have, although this happens very rarely.

Mortgage in a Tax Lien Sale

A lien stays with the property when it is sold. However, the lien remains on the previous owner's credit report. Property tax lien foreclosures occur when governments foreclosed properties in their jurisdictions for the delinquent property taxes owed on them. Property tax liens are superior to other liens, so their foreclosure eliminates other liens, including a mortgage lien. Homeowners with delinquent taxes typically also have outstanding mortgage debt. After purchasing a tax-foreclosed property, if you discover a mortgage lien on it, it should be removed by the county in which you bought it. The county will discharge the lien based on the tax sale closing documents. If this does not work, you can also contact the lien holder to have it removed. In every state, after the sale of a tax lien, there is a redemption period (although the length of time varies depending on the state) where the property owner can try to redeem their property by paying their delinquent property taxes. However, even if the owner is paying their property taxes, if they fail to make their mortgage payments during this time, the mortgage holder can foreclose on the home.

Focusing on the supposed “quality” of a property is the #1 mistake people make when they start in tax lien investing. DO NOT analyze the property associated with your tax lien the same way you look for a home or rental property. If you treat it this way, you will miss out on many great deals.

Who here has dreamed of one day owning a lot halfway across the country in a neighborhood you would not live in? If I told you the lot was available for pennies on the dollar and I would sell it for you quickly and double your money, never lift a finger; who is interested? The property exists as a safety net and a bonus, which is your hallelujah moment. Smart investors invest in the interest rate. Acquiring the property is a bonus, like winning the jackpot.

Property tax liens can be a viable investment alternative for experienced investors familiar with the real estate market. Those who know what they are doing and take the time to research the properties they buy liens can generate substantial profits over time. However, the potential risks render this arena inappropriate for unsophisticated investors. Without the proper research and understanding of the real estate market, an investor could quickly end up with a property that doesn't get redeemed by the owner (in the form of them paying their taxes to you with interest), and that has no value. That low-value property will then ultimately end up as the property of the investor. For those interested in investing in real estate, buying tax liens is just one option.

IRS Tax Liens and the Public Record

Are IRS Tax Liens Public Record? If a legal claim is made against your property to satisfy a tax debt, the IRS will file a Notice of Federal Tax Lien. This is a public document and serves as an alert to other creditors that the IRS is asserting a secured claim against your assets. Credit reporting agencies may find the notice and include it in your credit report.

We have purchased millions of dollars in tax liens, and when buying a tax lien, we focus on two items:

First: What is the interest rate? The higher, the better. It is not like buying a mutual fund where performance fluctuates. Tell your portfolio manager to sort their tax liens for the highest to lowest interest rate and send the highest interest rates they have.

Second: Can I make money? The property tied with the lien is not your investment, but your insurance policy. If you get a property, you will be ecstatic, but you would not believe how often we have sent a client a portfolio; they will look at it like they will have their own mother retire there. We hear things like: “That is a rough neighborhood, I would never live there,” or “That is halfway across the country.” You will not live there. You are going to buy it cheap and sell fast, and then you will repeat the process.

You should only be in the tax lien deal for a few weeks or months, not years. We are flipping tax liens: the faster we buy and sell, the more money you make. You would be surprised how many new tax lien investors walk away from a deal that could double their money in a few weeks since it is vacant or looks terrible. What is important to you: if the property is pretty or the deal is profitable?

The process is simple. I do not care where the tax lien is: if I think I can make money, I buy it since I know most of the time I will not get the property, but the interest. If I get the property, I price it to quickly sell: “Buy Low – Sell Fast.”

We have made way more money buying tax liens on vacant land than any other property type. We cherish vacant land. There is no need to worry about mold, fires, transients, rats, evictions, etc. The foreclosure and sale process is extremely clean and fast.

Our portfolio management team is there for you to answer questions, make sure you know what you are doing, and that you are comfortable. 

Buying a home in foreclosure or buying a home at an auction can also be valuable investment opportunities. If you are still interested in property tax liens, it is recommended that you consult your real estate agent or financial adviser.

A tax sale is the sale of a real estate property that results when a taxpayer reaches a certain point of delinquency in their owed property tax payments.

How Does a Tax Sale Work?

Every state has its own laws for tax sales that must be followed for these sales to be valid. The laws will vary based on which entity is requiring the taxes, whether it is a local or a state jurisdiction. In most areas the basic requirement is that adequate notice be given to the taxpayer to pay the outstanding taxes, and any resulting sale usually must be open to the public, so that an adequate price is obtained for the property. There is usually a waiting period that ranges from several months to several years before tax collection agencies are involved.

When a tax sale is triggered, the property owner has a right-of-redemption period. During this period they have the opportunity to pay off the delinquent taxes in full and reclaim the property. If the property owner fails to pay the back taxes, along with any accrued interest, the property is then eligible to be sold at auction or through other means by a governmental entity.

When a property goes to auction in a tax sale, the minimum bid price is usually set at 80% of the forced sale value of the property after subtracting any liens, based on the fair market value (FMV) as determined by the Internal Revenue Service (IRS).

Find Tax Sales Lists

You should have a good understanding of tax sales and systems used by now. Once you understand that process you can invest all over the country because each state usually follows that basic model.

Tax Sale Comparison

There are two types of tax sales that can occur when a property has unpaid property taxes. The first is a tax lien sale, and the second is a tax deed sale. In a tax lien sale, the liens on the home are auctioned off to the highest bidder, which gives them the legal right to demand lien collection, along with interest, from the property or homeowner. In the event that the property owner is unable to pay the liens, the bidder who purchased them can have the property foreclosed.

A tax deed sale, however, sells the entire property, unpaid taxes included, at a public auction. Jurisdictions may offer a right of redemption after a tax deed sale, which allows a homeowner to get their property back within a redemption period if they reimburse the purchaser the amount they paid at the sale.

Tax lien sales are both an incentive for the lien buyer to make money off the interest of the lien and a way to force the property owner to pay the outstanding taxes. Tax lien sales are only legal in 23 states in the U.S. (approximately 2,500 jurisdictions—cities, townships, and counties), and each state has its own cap for the maximum amount of interest that the new lien owner can accrue in interest.

Tax Sale List Basics

There are 2 categories of tax sale lists: Pre-auction lists and post-auction (over-the-counter) lists. Pre-auction lists are usually released 4-6 weeks before the sale. They contain all investments that will be sold at auction. Post-auction lists contain all tax liens or deeds that were offered at the tax sale, but not sold.

Some investors are concerned about getting the left over properties. They ask: “If the investors at the auction did not want to purchase these, then why would I want to?” This is valid, but the flaw is thinking of the word “want.” If other investors did not want them, why should I? That would only be the case if every investor had unlimited investing resources and every property had a buyer.

As you attend tax sales, you will notice there will probably be a lot of people there and few actually bidding, while the rest watch. In Phoenix, Arizona there were over 27,000 liens available and 13,000 left over. In Chicago there were 96,000 liens available and 44,000 left over. In Miami, 50,000 left over. There are incredible deals in those leftover tax liens.

Over-the-counter lists are usually released a week or two after the auction takes place. It takes county workers a little time to redo the list. Once the list is ready, counties will post it on their website. Investors will have to contact the county to request the updated list. Not all counties offer over-the-counter investing and hold them till the next sale.

Located tax sale lists is simple. Nevertheless, it is probably one of the most time consuming parts of tax lien investing and where most students hit the brakes and quit. It can be tricky working with counties.

Finding Tax Sale Lists 

The first thing to do is find out where the county sales are occurring. You can do this by looking on your website in the auction calendar or the state reference material. Once you know when the sale is happening and decide to get the list from the county, you would call to request the list. They will send it out or describe how to get it from their website.

Another way to find tax sale lists is via the newspaper. This is pretty archaic, but is still practiced all over the U.S. Even if a county posts the list online, they may also post it in the local newspaper. If the county only posts the tax sale list by newspaper, you are in trouble. If you live in the county, it is not too bad, but if you are investing from outside the country, you may need to consider moving on to another county. You would have to get the newspaper from the distributor.

You can also get it from our website. The calendar is updated at the beginning of every month with new events. The new lists are uploaded to the site to download, making the process simple. You should be comfortable with our website by now, so I will show you how to find county websites on your own. You can search Google for the county you are interested in. Investors prefer to find counties through Naco.org. It links to all counties and provides good information.

NACO.org Marketplace Pro Software

Go to About Counties in the top left corner and select the state you are interested in: Arizona.

NACO provides a lot of information about the state and counties. It shows a map of the counties, when it was founded, the county seat, square miles, and the population. The population is useful because it largely determines the size of the tax sale and potential competition levels. Then you select a county: Mohave. After selecting a county it shows the county’s population trends and contact information for elected officials. Click on the link to Mohave County’s website.

This is where some students get hung up. Every county website is different so it can be tricky to find the right department and the tax sale list. Some are easier to navigate than others, but most have the same general pages and tabs, so we try to follow the same pattern. Most county websites have a search tool, county services, elected officials, and department listings, but we do not care about most of this. We care about two offices: The office that handles the tax sales and the office that does the property records and assessments. Typically, the treasurer’s office handles tax sales and the tax assessor handles the property records and assessments. This is pretty standard across all counties. You use the assessor page to research each property you want to invest in. You would find fair market values, assessed values, images of properties, owner information, and other information that is especially useful during your due diligence.

Another example: Riverside County, California. This time try using Google search. Go to Google.com and search for “riverside, ca county.” Once you get to the website find the treasurer or tax collector and look for keywords like property taxes, tax sale, property tax website, delinquent parcels, county held certificates, delinquent taxes, etc. There is a link that says Property Tax Website. Click on that. On the left side you will see a bunch of information including tax sales. You may want to take a look at results from a previous sale if you are interested. The easiest way to find tax sale lists is through our website, but it is great to know how to do it on your own.

Marketplace Pro Software

A great deal of the success you can derive from tax lien investing has to do with locating diamonds in the rough. With Marketplace Pro software, you can quickly and easily identify properties offered in county auctions. You can learn more about Marketplace Pro by contacting us today and scheduling a demonstration.

Looking to buy a property at an auction? There are alternative ways to buy besides the traditional channels of searching real estate listings and working with real estate agents. You can also purchase a property at auction.

Buying a home at auction is riskier than buying through the usual process. It is vital to be well educated about how real estate auctions work.

• You can find home auctions through local governments, real estate agents, and online sites such as RealtyTrac.com and Auction.com.
• Auction properties often do not allow a home inspection or any legal way to view the interior in person. If you cannot afford the risk of buying a property in poor condition, stick with auctions that allow you to inspect the property before bidding.
• Review and understand all auction rules and do your due diligence on any property you are interested in—for instance, check for claims, liens, and occupants before you bid.

The benefits of buying at auction include expanding your options and possibly purchasing at a discount. You may face less competition to buy an auction house compared with buying in the traditional way, but you will also be dealing with a different pool of potential buyers—often, experienced investors.

Perhaps the biggest risk of buying at auction is that you will have limited knowledge of the properties for sale, making an expensive misstep a real possibility. Also, as with any real estate purchase, you will need to read, understand, and sign lots of paperwork (ideally with the help of a real estate attorney).

Real-estate lore is rich with tales of homes bought at auction for well below market value, and such bargains do exist. However, auctions are typically a riskier way to acquire property than buying through the usual process. That reality makes it vitally important to be well educated as to how real estate auctions work and prudent about the properties you consider bidding on.

To help you avoid making a big mistake, here are the basics of residential property auctions, so you can decide if this option might work for you—whether you want to live in the property or use it purely as an investment.

Tax liens or deeds can be purchased using one of the following methods:

• Live On-site Auctions
• Live Online Auctions
• Over-the-Counter

How Homes End Up at an Auction

There are two common ways a home can end up being auctioned off.

Foreclosure auctions: When a homeowner has not paid the mortgage for at least a few months, they may fall into default and end up in foreclosure. When this happens, the bank files a notice of default with the county recorder. If the homeowner does not pay the balance owed—or renegotiate the mortgage with the lender—the lender can put the home up for auction and force the homeowner out for nonpayment. These foreclosure auctions are held by bank-hired trustees. 

Property Tax Default Auctions:

Another way a home ends up on the auction block is when the owner does not pay the assessed property taxes. In these cases it is the unpaid tax authority, rather than the bank, that seizes the property. The resulting tax lien auction is conducted by a local sheriff, clerk, or the county or local tax authority’s comptroller’s office.

Regardless of the auction type, these events may take place at physical locations such as local government courthouses and hotel conference rooms, and these in-person auctions are completed rapidly. Real estate auctions also increasingly take place online, where they may last for days or weeks.
Buying homes at auction has been and will continue to be popular.  However, foreclosure auctions don’t provide the discounts that existed during the time of the housing crisis. 

When fewer properties are available, buyers are highly motivated because of home appreciation and favorable mortgage rates. He says that online auctions have increased competition and driven up prices.

Property Condition and Inspections

A house could have all kinds of problems—remember, it used to belong to someone who couldn’t afford the mortgage or the property taxes, so the owner probably could not afford any routine maintenance or repairs, either.

Furthermore, once the loss of the home appeared inevitable, the owner may have intentionally neglected it or even seriously damaged it. Also, a vacant property may have been vandalized or occupied by squatters.
Assume that if the property looks terrible from the outside, it probably looks terrible on the inside. Auction properties are sold as is, and you will need to be able to afford any and all repairs.

1) Live, On-site Auctions

This is the oldest and most common method for selling tax liens and deeds. County officials schedule auctions unless the state requires otherwise. When you invest at a live auction you go to the county courthouse to bid on properties alongside other investors. Before attending, you register and get assigned a bidder identification number. Check with the county for any registration deadlines long before the auction.

You would sit down in the room and wait for the auction to start. An auctioneer stands at the front of the room and reads an identification (parcel) number for a property one at a time, which is usually the parcel number. Then the bidding begins on the property. The auctions are public so there may be quite a few people there, and the level of competition at the auction largely determines your success.

2) Live, Online Auctions

Online auctions work like a live, on-site auction, except it all happens on your computer. Before the auction starts, go to the website, register for the event, and download the updated list. When the auction starts, you simply bid by clicking your mouse.

The advantage of an online auction is you can participate from the comfort of your home. You can do most research from the comfort of your home and many online auctions will have the property information easily accessible. Just by clicking on the tax lien or deed that is being offered at the online auction, you can pull up much of the crucial information we are interested in.

Different Bidding Methods 

Methods Counties typically use one of three bidding methods at their auctions: premium bidding, bidding down the interest rate, bidding down the percentage of ownership, rotational bidding, and random selection.

Premium Bidding 

This method is most common for tax deed states. There are only a couple of tax lien states that use premium bidding. The premium bid method is like what you would expect at a typical auction. The price starts at the delinquent tax amount plus fees, it then goes up according to bidders. Depending on the competition at the auction, the price could remain fairly low or go fairly high.

The amount the property is bid above the base amount is known as the surplus. If the opening bid starts at $10,000 dollars and you end up paying $15,000 – the additional $5,000 is the surplus. Usually that will be given back to the property owner after debts are paid.

If investing at an auction using this method, make sure to set a maximum price you are willing to pay and do not exceed it.

Bidding Down the Interest Rate 

This system uses the interest rate the investor earns as the bidding medium. Bidding starts at the maximum rate of return the state offers and the rate is bid down by interested investors. Florida, Arizona, and other large tax lien states use this. In Florida, bidding starts at 18% and then goes to 17.75%, 17.5%, and on until no one is willing to go lower. If attending an auction that uses this method, set your base interest rate.

Bidding Down the Ownership 

This is the least common bidding method for good reason. This method uses the ownership of the property as the bidding medium. The bidding begins at 100% property ownership and then works down 1% at a time until bidding stops. After the sale, the investor would own whatever percentage he or she bid to, and the previous property owner retains the remaining percent.

If used in a tax lien state, the ownership applies after the redemption period ends and the investor attempts to take ownership of the property. In order to settle the difference, the investor would have to settle with the previous property owner. This bidding method is rare and a little bizarre.

Forms of Payment

Most counties will require payment for any tax liens or deeds 24 hours. Counties will require certified funds, bank checks, or cash. Online auctions have payment systems in place that allow you to pay with a credit card or ACH withdrawal.

There are two categories for tax investors: long-term investors, and those interested in high-interest investments: and short-term investors looking to acquire the property.

What type of investor are you?

The kind of investor you are is determined by your resource constraints: the cash you set aside to invest, time available, ability to travel, etc. Try answering the following questions.

• How much money do you have currently dedicated to this strategy?
• Where is that money located? I.E. Checking, Savings, etc. 
• Will you need access to that money in the next 12 months?
• How much time can you honestly devote each week to this strategy?
• Are you willing to travel regularly?

The answers to these questions will determine what investing profile you are.

Profiles

Profile 1: Tax lien certificate investor. These investors try to generate high-interest returns through tax liens. You can invest through live or online auctions. Travel is unnecessary. This investor can use their self-directed IRA or 401k accounts to invest. Tax liens will not take too much time to invest; they are simple and do not require much research. Liens require you know the basics of each investment before bidding. You do not have to fly anywhere to evaluate tax liens since most redeem and tax liens are usually less expensive than tax deeds so that investors can get started with little capital.

A tax lien certificate is a lien placed on your property for not paying your taxes. Every time your property taxes come due, the state will issue what is known as a tax lien. If you pay your taxes on time, the lien is removed. If you don't pay your taxes or pay them on time, the town or county will auction off the tax lien certificate to investors. That investor will then pay the taxes to the property tax owner.

The county or state of the home's location usually conducts tax lien sales auctions. For a home to qualify, it must be considered tax-defaulted for a minimum period of time, depending on local laws. Instead of bidding on an amount for the home, the interested parties can bid on the interest rate. The investor who bids the lowest rate wins the auction and is issued the tax lien certificate.

After an investor wins a bid for a specific tax lien certificate, a lien is placed on the property. A certificate is issued to the investor detailing the outstanding taxes and penalties on the property. But it's worth noting that not all states and counties have tax liens. Some states, only perform tax sales on a defaulted property, resulting in the winning bidder becoming the property's legal owner in question. The term of tax lien certificates typically ranges from one to three years. The certification process allows the investor to collect unpaid taxes plus the applicable prevailing rate of interest, ranging from 8 to more than 30 percent, depending on the jurisdiction.

Profile 2: Tax deed investor. Most tax deed investors will have to travel to evaluate properties and make purchases at the auction. Most tax deed states require the investor to attend the auction to make a purchase. Tax deeds can be purchased through self-directed IRA accounts, and typically require more money and time than tax liens. It is essential to evaluate each investment before pulling the trigger since you will own the property shortly, so they require more time. 

A property tax is any tax paid on a piece of property. Taxes are paid by the owners of real estate—individuals or corporate entities—and are assessed by the municipal government in which the property is located. The taxes collected are used to fund various municipal programs, such as water and sewer improvements, law enforcement and fire service, education, road and highway construction, public servants, and other services.

Property tax rates vary by jurisdiction. When property taxes are left unpaid, the taxing authority may sell the property's deed or title—and therefore, the property—to recover the outstanding taxes. The taxing authority—usually a county government—must go through a series of legal steps to acquire a tax deed. These include notifying the property owner, applying for the tax deed, posting a notice at the property, and posting a public notice of sale. The exact steps that must be taken generally vary following local and municipal laws.

Profile 3: Over-the-counter tax lien investor means the investor is buying tax liens after the auction. This investor spends most of their time doing online research and finding deals. This investor is not interested in attending auctions to bid against other investors and is content with the opportunities left post-auction. This investor is also interested in the full promised interest rate since some auctions require investors to bid down the interest rate. An investment that starts at 18% may end up much lower if buying at the auction. When buying over-the-counter, the investor gets the full interest rate every time. Time and money constraints are similar to Profile 1.

Profile 4: Over-the-counter tax deed investor. This investor is constrained by similar things as Profile 2 and is interested in building lots, vacant land, raw land, etc. With the struggling economy and lack of investors, investors see more over-the-counter single-family homes, so those do not get excluded completely. Most new and advanced investors look for single-family homes, which is wise. Down the road, please do not pass up great deals because it lacks a white picket fence. For example: Building lots can be fantastic investments; it is possible to make significant profits. They usually require less capital but can be flipped easily. You could buy a lot between two homes with power and sewer set up for one of the property owners.

Tax liens are similar to tax deeds, but there are some subtle differences. While tax deeds transfer ownership of the property itself to a new party, tax liens are a legal claim against the property when the taxes aren't paid. Tax liens provide a relatively cheap investment for investors with a guaranteed return. Liens can cost anywhere from a few hundred to a few thousand dollars and pay simple interest that accrues monthly. Here's how the process works. A government body places a lien against a property if its owner defaults on their property taxes. These liens, which prevent owners from doing anything with the property, including refinancing or selling it, are sold off at auction rather than the property itself. Interested parties can invest in these tax liens by bidding for them. The return is based on a maximum rate of interest allowed by the municipality.

When a property owner defaults on their property, the municipality sends a notice advising them of the upcoming tax lien. If the owner doesn't bring the taxes up to date, the tax lien is then put up for auction. The lien is transferred to the highest bidder, who pays the outstanding tax amount to the municipality. To remove the lien, the property owner must pay the new lien owner the due amount plus interest.

Profile 5: Pre-sale tax deed investor, or short sale tax deed investors. This is illegal in some states, so check before you do it. These investors are aggressive with significant investment funds. They are short-term investors who look for quick returns. When the tax sale list releases a couple of weeks for the tax deed sale, the investor contacts property owners to offer another solution. If the property owner is interested, the investor evaluates the property and offers cash for the property owner, and the county for the delinquent property taxes and fees. If the market value and payment to the property owner and county is valid, go for it. This could be an excellent solution for popular or competitive tax deed counties.

Profile 6: Limited time and resources investor. For investors that lack time and money. This process starts small and slow. These investors look for tax liens to go to foreclosure and make a lot of money from a small investment. There are ways to do that, that takes a little more time and research.

Profile 7: Redemption deed investor. This investor has time, money, and travel ability. This investor has an interest in large returns and potential ownership but is willing to wait if needed. This investor must do a lot of due diligence to ensure good investments. This is a great strategy.

You do not need to focus on just one strategy or profile since you might fit into more than one and do more than one. You will need to adjust your time and money to accommodate. Think about these profiles concerning the answers you gave to the questions earlier. Where do you fit and what do you want to do. If you have constraints, raise money, save money, free up time, etc. to fit another profile.

After finding what profile you are and the investment you want to make, go through the reference materials for states on our website to see what states you can invest in and how they work. After you know which states, you can download the lists from the website. 

The county government's role in tax lien investing is an intricate subject. Therefore it’s pertinent to provide an overview of the federal and state governments.

The federal government is primarily funded by income taxes and does not play a massive role in tax lien investing. State governments get a portion of their revenue from income taxes, but an enormous amount comes from sales taxes. The state is crucial since it determines how tax sales will operate. In most cases, it determines the system used: Tax liens, tax deeds, redemption deeds, or a combination. The state will determine when sales occur during the year and what auction method will be used, such as using a bid down the interest approach, the premium bidding method, or another bidding method.

County governments receive their income mostly from property taxes and the tax sale process. Even though counties receive money from the state and federal governments, their primary source is property taxes.

Elected officials manage the county government and each official has a role in the tax sale process. Some officials are the commissioner, sheriff, property assessor, and treasurer. The treasurer or tax collector is usually a primary point of contact at the county for financial information. At the Assessor's office, you can gain more information regarding property conditions. The sheriff is sometimes responsible for the actual tax sale, so sometimes the tax sale is referred to as a sheriff's sale.

Twenty-nine states, plus Washington, DC, the Virgin Islands, and Puerto Rico, allow tax lien sales. Every state uses a slightly different process to perform its tax lien sales. Usually, after a property owner neglects to pay their taxes, there is a waiting period. Some states wait a few months, while other states wait a few years before a tax collector intervenes. After this, the unpaid taxes are auctioned off at a tax lien sale. This can happen online or in a physical location. Sometimes it is the highest bidder that gets the lien against the property. Other auctions award the investor who accepts the lowest interest rate with the lien. Tax collectors use the money that they. Earn at the auction to compensate for unpaid back taxes. Once the lien has been transferred to the investor, the homeowner owes them their delinquent property taxes, plus interest (or else they will face foreclosure on their property).

The County Treasurer or Tax Collector

The County Treasurer receives and safely keeps revenue of all public monies of the county, invests surplus funds, distributes the money collected to the proper recipients, and pays the county's bills as directed by the County Board.

Why is the County Treasurer essential to us?

First, they typically oversee the tax sale. They are also responsible for the taxation of all personal and real property within the county. They send out tax notices, delinquency notices, and tax sale notices. It is generally the treasurer who is contacted when you purchase a tax lien directly from the county or get information on the potential investment. The treasurer may also be given some leeway from the state with certain things about the tax sale. They may have power over whether tax liens or deeds are sold after the auction.

Understanding Unrecorded Deeds

An unrecorded deed is a deed for real property that neither the buyer nor the seller has delivered to an appropriate government agency. Unrecorded deeds can present many sellers (or grantors) issues and buyers (or grantees) such as proof of ownership and tax implications. A deed transfers specific rights of ownership to a piece of real property between two parties. Most jurisdictions require that sellers file an original deed with a government agency that maintains such records in a given municipality. In the United States, this often takes place at the county level. This record serves to notify the public of the property's sale, which in turn assures current ownership to any entity involved in transactions effected by the property, such as the issuance of a mortgage or a home equity loan, where the property serves as collateral. Failure to record a deed effectively makes it impossible for the public to know about property transfer. 

That means the property's legal owner appears to be someone other than the buyer, a situation that can generate serious ramifications. For example, a buyer could encounter great difficulty selling, insuring, or obtaining loans for a property if financial institutions and insurance companies cannot establish a clear title. Worse, an unrecorded deed creates the seller's potential to engage in a subsequent sale of the same property to yet another buyer. Most mortgage companies require prospective home buyers to conduct a title search and secure title insurance on the purchased property. Self-financed purchasers would do well to consider the same steps. 

The title search examines existing public records to ensure a clean transfer of title, a process that outstanding liens or past-due property taxes could disrupt. Title insurance offers a further backstop by protecting the insurance holder from any losses due to the title search's deficiencies in the title not turned up. Buyers should note that lenders often require a separate title insurance policy that protects only the lender's interest in the property. Therefore, buyers may want to purchase a policy covering their interests as well. For example, suppose a homeowner self-funded the purchase of a home with an unrecorded deed, and the seller neglected to close out an existing second mortgage. If the seller were to default on the loan, the bank would file a lien against the collateral, which would still appear to belong to the seller because of the unrecorded deed.

The County Assessor

The county assessor is in charge of assessing a property's tax estimated value. They put a value on every piece of real estate within the county. They determine the value by considering the county's budget and the real estate's fair market value.

Why is the Assessor important to us? 

The most important thing is that property records are usually stored with the county assessor. When we research potential investments, the property records will be vital to us. We will find images, values, addresses, sales history, property description, etc. on these records. Increasingly, this information is stored online on the county assessor's website instead of only in paper form at the county office.

How are properties assessed?

Properties are assessed using one of three methods: market, cost, or an income approach. Most assessors use a computer-assisted mass appraisal system to evaluate every property in the county. Let us quickly go through each of those methods.

Fair market value: The price a willing and informed purchaser would pay to an unrelated, willing, and informed seller where neither party is under compulsion to act. An excellent way to judge that value is to check the prices of recent sales of comparable properties. This is where we get the term “comps.”

Some people use Zillow or other websites to get a quick look at comps or evaluated property values. The keyword there is evaluated. Although Zillow has been known to be right on, it also can be off by quite a bit. It is good to get an idea from Zillow, but it should not be treated as absolute truth.

A cost-based approach can be used where recent comparable property sales are not available. In this approach, the original or replacement cost of a property is reduced by an allowance for depreciation of improvements. Construction cost estimates can determine the replacement cost.

With the income approach, value is determined based on present values expected income streams from the property. This could be used on farmland where crops produce revenue each year. The Assessor may choose to include the potential income for the property as a source of property value. 

Why Marketplace Pro is the resource you Need

Direct multiple listing service (MLS) reports are far more valuable to potential buyers than online listings, according to White, because they contain the full data for the listing, including photos and, most important, non-public broker comments. “Non-public comments are important because they specify critical information impacting sale price and days-on-market,” says White. This information can cover property defects, financing options, occupancy, and tenant leases.

While rules vary by location, MLS and county records are often only available to real estate licensees, according to White. In his experience, they are usually happy to help free of charge if you contact them. White also notes that in-person auctions have been disappearing because even smaller counties have been moving them online. Miami and Palm Beach are two locations where both tax and foreclosure auctions are now entirely online. Keep in mind that foreclosure auctions are often postponed or canceled, even at the last minute. The lender might not have obtained all the paperwork it needs, or the borrower may have worked out a solution to avoid foreclosure.

By definition, a lien is a claim against an item, which affects the ability to transfer ownership by another party, which utilizes that item as security to repay a loan, or other claims. Ad valorem taxes, otherwise known as property taxes, are county assessed taxes on real property within the county boundaries.

Every piece of real estate is prone to property taxes: vacant land, raw land, and occupied land. Each property's tax rate is found by combining the property value and the county's estimated budget for one year. This is why the assessed value of the home is most often different than the fair market value.

The county uses property taxes to fund things such as the fire department, police department, road signs, streets, development projects, schools, etc. This is why this investment exists, to give the government its primary source of income. If property taxes were non-existent, then county governments would be bankrupt.

What Is Property Tax?

Property tax is a tax paid on property that is owned by an individual or other legal entity, such as a business. Property tax is most commonly a real estate ad-valorem tax, which can sometimes be classified as a regressive tax. It is determined by a local county where the property is located and paid by the property owner. The tax is typically assessed on the value of the property. Jurisdictions also tax personal property, such as boats or cars.

The local governing body will then use the taxes to fund water and sewer management, and provide policing, fire protection regulations, schools, highway construction, libraries or other services that may benefit the community. 

The amount property owners owe in property tax is determined by multiplying the property tax rate by the lands' current market value in question. Most taxing authorities will reevaluate the tax rate yearly. Almost all taxes are levied on real property, legally defined and classified according to the state. Real property includes land, specific structures, or other buildings.

In the end, property owners are subject to the rates calculated by the municipal government. A municipality will hire a tax assessor who evaluates the local property. The assessor will then assign property taxes to owners based on the current market values. This value will become the assessed value for the home.

The payment schedule of property taxes will vary depending on the location. In almost all local property tax codes, the owner can discuss the tax rate or argue for a different one. When property taxes are left unpaid, the taxing authority may assign a lien against the property. Buyers should always request a full review of any outstanding liens before purchasing any property.

The terms property tax and real estate tax are sometimes confused. But to be clear; Real estate tax is a kind of property tax. But it's not true the other way around. Not all property taxes are real estate taxes.

In addition to real estate, many local counties will also rely on property taxes against tangible personal property. Both types of property are tax-deductible if you file Schedule A with your income taxes. Because of the Tax Cuts and Jobs Act, however, the amount of state and local taxes that taxpayers could deduct on their federal income taxes fell from unlimited to $10,000 per year for either married couples or single taxpayers.

In short: Real estate taxes are taxes on genuine property only; property taxes can include both real property and tangible personal property.

Tax Lien Scenario

If a homeowner has defaulted on his payment, then the mortgaging bank will start the pre-foreclosure process. A tax lien will then be issued for the property so that the right to retain the property can be gained. You can do real estate investing in tax liens for a certain property that has been issued a lien and put out for an auction sale. You can earn profit from this because the state will pay fixed interest on a tax lien, and others will start the bidding price at auctions in the amount of the lien. Suppose the tax lien is unpaid during the duration of the redemption period. In that case, all other mortgages and liabilities on the house are extinguished, and the title to the property will be cleared. The investor will now own his or her new property with a clean title. However, if the owner can pay the property's liability, the investor can still earn through interest earned on the lien. Real estate investing in this manner can lead to profits in both ways.

Tax Lien Scenario

A property owner fails to pay their property taxes. Many property owners pay property taxes along with their mortgage, but sometimes the property owner does not have a mortgage, or dies, so the property owner fails to pay property taxes before the due date.

Instead of raising taxes for people paying taxes, the county places a tax lien on the property. After the tax lien is issued, it gives the county a way to collect debt differently: Tax lien certificates. The county issues the tax lien certificate and announces the sale. People go to the website, find out about the sale, and show up to purchase the certificate. Investors are not interested in the piece of paper, but in what the certificate represents – Guaranteed interest on investment!

The collection of property taxes is usually conducted by municipalities and governed by the state. Each state is free to set their own rules for selling and rewarding the buyer for each tax lien certificate, with few federal laws that bind the states. This is why careful research is crucial because each state differs and requires specific understanding. The states are remarkably similar in how they reward and function, with some key differences. Different states will often give higher percentage rates to the investor, or longer redemption periods for the property owner.

Investors can buy tax lien certificates the same way properties can be bought and sold at auctions. The auctions are located in a physical location or online, and investors can either bid on the interest rate on the lien or bid on a premium price they will pay for it. Usually the investor who accepts the lowest interest rate or pays the highest price is then awarded the lien certificate. With that said, buyers will often get into bidding wars over a given property, which drives down the rate of return that the winning buyer reaps.

Buyers of properties with tax liens need to be aware of other potential pitfalls and other unexpected costs if they want to properly own the property. The new owners of these properties may have to deal with difficult tasks, like evicting the previous owners. That may also be an unexpected cost, as help from a property manager or an attorney could be needed.

Anyone interested in purchasing a tax lien should probably begin by deciding on the type of property they'd like to hold a lien on. It can be commercial, vacant land, or property that needs some fixing up. At that point they would then contact their city or county treasurer's office to find out the location and time of the next auction. While it's true that the treasurer's office can tell the investor where to get a list of property liens that are scheduled to be auctioned, Marketplace Pro is a much more convenient solution as an online database. These rules will outline any pre registration requirements, accepted methods of payment, and other pertinent details.

The county holds the tax sale, and investors show up to buy the certificate. Investors want the interest that the government promises for that certificate. The auctioneer presents the certificate to the investors, and the ones interested will bid on the certificate.

The investor did not pay taxes for the property owner but purchased a certificate in the same amount the property owner owes to the county. The investor does not own the property, but the certificate. The investor may have the right to take ownership after the redemption period ends if the property owner fails to pay their taxes.

This investment was made in Florida, where the interest rate is 18% and the redemption period is 2 years. When the investor buys the certificate, the interest immediately builds up. Unlike stocks, or any other investment, you do not have to watch and worry about if the values are rising or dropping and if you are making or losing money every day. Tax liens let you know that you are making money and you can calculate the money you are making daily.

To remove the property's tax lien, the property owner has to pay property taxes to the county, not the investor. The property owner is unaware the investor exists. The property owner goes about their normal business and pays the property taxes owed but is also required to pay a late penalty. The county then writes a check to the investor for the amount of the taxes, plus the interest paid as a penalty for the owner. The property owner had to pay the same 18% the investor earned, and the county passes that money straight to the investor.

What if the property owner never pays the proper tax amount?

The tax lien certificate the investor bought gives them the right to take ownership of the property through foreclosure. This means that with tax liens you either get your investment plus a high interest rate such as 18%, or you get the property.

This is a Win/Win/Win situation. The county gets their operating money, the property owner receives a redemption period to pay their taxes, and the investor gets a substantial return.