Author: unitedtaxliens

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.

Redemption deeds are a mixture of tax liens and deeds. Here we will look over redemption deed investing. Redemption deeds are tax deeds with a redemption period. You are buying real property, but the property owner gets one more chance to redeem or repurchase the property. The positive takeaway here is that the property owner has an attached penalty. Interest rates tend to be overly high for redemption deeds. Right of redemption allows those who have defaulted on their mortgages the ability to reclaim their property by paying what is due (plus interest and penalties) before the foreclosure process formally begins. In some states, it can also happen even after a foreclosure sale (for the foreclosure price, plus interest and penalties)Another review: The property owner is responsible for some amount of money to pay the county in property taxes. Property taxes are the central sources of income to support a county. When the property owner fails to pay the taxes, the county is left with a need for money. The county will offer the redemption deed for sale to investors, instead of issuing tax lien certificates. They announce the sale, and investors come to bid on redemption deed properties. The winner does not receive a tax lien certificate, or a deed to the property with full control. The winner walks away with a redemption deed with a remarkably high-interest rate attached with the promise of property ownership if the property owner fails to pay property taxes during the redemption period.

When an individual receives a mortgage to purchase a home, the home itself serves as the loan's collateral. That means that the homeowner forfeits the control of the home if they default on their restitution. often a mortgage note will include the right of foreclosure, which describes a lender's ability to own a property through a legal process called foreclosure and outlines the qualifications under which the loan company has the right to foreclose. (State and national laws also administer the right of foreclosure.)When homeowners default on their mortgage return, lenders may invoke their right to foreclosure. Lenders must also abide by specific procedures for a foreclosure to be verified legally. First, they must provide a standard notice to the mendicant, alerting them that their loan is in default from missed payments. The homeowner then has a specified amount of time to make right on any missed payments in order to avoid foreclosure.

They will likely also be required to pay late payment fees in addition to any outstanding balances. They may also use this time to protest the foreclosure if they believe that the lender does not have the ability to rectify foreclosure on the property. If a home eventually is foreclosed upon, the lender will generally sell the property to recoup money lost on the loan. The right of redemption allows mortgagors to recover their property and stop a foreclosure from happening, or, in some cases, even rebuy their property after a deal has occurred.

Interest Rates

The advantage of redemption deeds is the promise of higher interest rates like 24% and 25% and taking ownership at the end of the redemption period. It is also much simpler to take ownership at the end of the redemption period. Let us look at an example: Texas. Texas offers two redemption periods depending on the property type. For homestead properties, the redemption period is 2 years; in this case, the longer the better. For the first 6 months of the redemption, there is a 25% penalty. That means that if the property owner redeems within the first week, the investor will make 25%. After the first 6 months, you make another 25% penalty, making the first year 50%. If the property owner fails to redeem after the first year, another 25% penalty is added, making the total potential return 75%. If the property owner never redeems, the property is all yours. If the property is non-homestead, the redemption period is only 6 months. Non-improved properties are improved lots, vacant land, raw land, etc. On that investment, you will make a 25% penalty or take immediate ownership after six months. It is not hard to imagine why this strategy is getting popular, especially in Texas.

When you speak with the county, they might not know what you are talking about if you say you are looking for redemption deeds. This is just a descriptive term we have come up with. They may refer to them as tax deeds or tax sales. Another note: Sometimes the country does not handle the auction but will outsource operations, announcements, and management to another company, sometimes a law firm.

Redeemable Deeds vs. Tax Liens

Every redeemable state treats these deeds differently, however.

In Texas, for example, when you purchase a redeemable deed, you are considered the property's legal owner. You can evict anyone who may be in the home once you record the deed. The previous owner may have redemption rights, but is no longer considered the rightful owner of the property.

In Georgia, which is another well known redeemable deed state, when you purchase a deed you are not the legal owner of the property. Once the redemption period is over and you can foreclose on the property. In Georgia, you need to foreclose the redeemable deed lien to take ownership of the property.

In both Georgia and Texas, in order to redeem the deed, the owner is required to pay the investor what they bid at the tax sale plus a hefty penalty, not interest. This means that if you purchase a redeemable tax deed and it is redeemed a few days after you record the deed, you still get the full penalty amount. You make the same interest on your money if it redeems in 2 weeks or 2 years. A penalty is not annualized like an interest payment would be.

One can exercise a right of redemption during a period of time called the redemption period, which may be before or occasionally after a foreclosure auction has ended. Every state allows mendicants to exercise their rights of redemption before the end of foreclosure proceedings. Many states also grant the right of redemption after a foreclosure sale, which is called statutory right of redemption. In this case, the repayment rules may be different from paying off all the outstanding debt that existed before the sale and may require paying the foreclosure, plus other fees.

Despite the ability to exercise the right of redemption before a foreclosure sale, mendicants will sometimes tend to only exercise a right of redemption after a foreclosure, if they decide to. This is because borrowers who already have enough funds to cover the fees of paying off the outstanding debt plus other fees are unlikely to have lapsed into default in the first place.

One drawback to investing in redeemable deeds is that there are only seven states, and one city, that sell them. The seven states (and one city) that sell redeemable tax deeds are Connecticut, Delaware, Georgia, Hawaii, South Carolina, Tennessee, Texas, and Philadelphia, PA. Another drawback to investing in redeemable deeds is that of the seven states and one city with redeemable deed sales, only one county conducts an online tax sale. All the other redeemable deed sales are conducted as live auctions, and you have to show up to bid. Only Shelby County, Tennessee, conducts their tax sale online.

How Right of Redemption can Help Investors

In theory, the right of redemption can sometimes help mortgagors stay in their homes. In reality, the right of redemption is not commonplace, because most borrowers in default don't have the ability to pay the large debt needed to exercise the right.

However, the borrower can profit from certain circumstances when they exercise a right of redemption after a foreclosure. A home may sell below its actual market value in an auction. If the borrower's state allows the right of redemption to be exercised after the sale, the mendicant could take back ownership of the home. In this case, the borrower would pay back the foreclosure sale price plus additional fees, which might be lower than the mortgage's debt.

They could then resell the property above market value and keep the difference as profit. This wouldn't be functional in every state; in some circumstances, a right of redemption could still manage full repayment of debt rather than the foreclosure sale price.

The state's goal is to collect delinquent taxes. Because of this, it is likely to sell your property far below the market price. Therefore the purchaser of such property has an opportunity to purchase homes at an unusual discount. Typically you do not have the option to finance this purchase, and unlike most real estate investing, the purchase needs to be completed quickly — sometimes in as little as 24 hours.

You should view the property to see if it is suitable. Make sure that you are familiar with the procedures of the particular state. Keep in mind the original owner's right to redemption. Although you may gain a home at a reduced rate, the owner's right to redeem may make your homeownership short-lived.

The tax deed system is extremely similar to the tax lien system, but the investments are offered at another point in the certificate county's timeline. The term “tax deed” refers to granting ownership of a property to a government body when the owner fails to pay property taxes. A tax deed will allow the government to sell the property to collect the taxes that are due. Once sold, the property is transferred to the buyer. These legal transactions are called “tax deed sales” and are held at auctions both online and in person.The county depends on property taxes to support the fire department, the police department, roads, schools, etc. When property owners fail to pay property taxes, the county is left in a difficult position. They have to try and replace their primary source of income. Instead of raising taxes for those that pay, they made a great system that allows investors to loan money to the county in exchange for assets. The county will then issue a tax lien on the property to keep the property owner from selling their property and creates a tax lien certificate with a state-mandated interest rate to sell to investors. They give the delinquent property owner a certain amount of time, usually one to three years, to pay back property taxes to the county.

As a reminder, the property owner does not write a check out to the investor, but to the county. The county issues the first notice of a property that has defaulted and announces the sale of the tax lien certificate. The property owner is notified that there will be a penalty for paying property taxes late. When the property owner pays property taxes and their penalty to the county, the county delivers a check to the investor for the investment plus the interest built up to that point. If the property owner fails to pay during the redemption period, the investor has the opportunity to take ownership of the property through the foreclosure process.

Tax Deed Process

Tax deeds legally transfers ownership to the new buyer on the condition that the buyer must pay the amount owed within 72 hours, or the sale is canceled.

In California, claims must be filed within one year, while the deadline in Texas is two years. In Georgia, you can claim funds within five years after sale of a tax deed certificate. At that point a court order is required to retrieve excess funds.

The county does not sell a certificate with an interest rate to tax deeds, but sells the deed to an already foreclosed property. When the property owner is delinquent, the county issues a delinquency notice and issues a tax lien to the property, so the property cannot be sold. The county allows the property owner a set time to pay off their property taxes. The redemption period starts when taxes are due. If taxes are due April 1, and the redemption period is two years long, the property owner would have until April 1 due to the penalty increase. If the property owner completes payment for the taxes and liability, the county keeps the money and moves on. If the property owner fails to pay during the redemption period, the county begins the foreclosure process. The county takes control of the property through foreclosure and announces its sale.

The county makes a public notice of the auction: in the newspaper, on the county office bulletin board, or their website. Educated investors show up and start bidding on tax deed properties. Bidding begins at the amount of the delinquent property taxes and goes up according to the competition. Depending on the number of investors interested in that particular property, the property can go for low prices. The winner walks away with a tax deed to the property and a big smile.

Some states will sell the title to the winning buyer on the day of the tax deed sale auction. Others will allow a redemption period. During this time the original owner can repay their debt and redeem the property. If the owner pays their debt within the allotted time, they must pay the winning buyer the amount bid at the auction plus interest, which can sometimes be high. But if the redemption period passes, and the owner still does not reclaim their property deed, the highest bidder can foreclose on the property.

Differences

The primary differences between tax liens and tax deeds are tax liens are usually long-term investments and tax deeds are short-term investments. Tax liens are very similar to tax deeds, but there are differences. Tax deeds complete the ownership process of property itself to a new bidder. While tax liens are an actual legal claim against the property when the taxes aren't paid in due time. Tax liens provide a solid investment for investors with a rare thing in the investing world: guaranteed ROI (return on investment). Liens can be as low as a few hundred dollars and pay simple interest that accrues monthly. 

A state government places a lien against a property if its owner does not pay property taxes on time. These taxes, which prevent owners from doing anything profitable with the property, are actually sold off at auction rather than the property itself. Those interested can invest in these liens by placing a bid for them. The return will be calculated with a maximum rate of interest allowed by the city or state. When a property owner first begins to default on their property, the city will send a notice advising them about the upcoming lien. If the owner doesn't pay, the tax certificate will then be sold at auction. The lien will then be owned by the highest bidder, who pays the outstanding tax amount to the municipality. To remove the lien, the owner must pay the new lien owner the due amount plus interest.

You can get into tax liens at lower prices than tax deeps; for tax liens, you get a certificate with the promise of an interest rate, and with tax deeds, you get the property. Tax deeds are inspiring since it is possible to get outstanding deals since the bidding starts so low. Once the property is finally sold, properties acquired from a tax deed sale will have what is called a “cloud” on the title, meaning the property can not be conveyed until the defect is cured or resolved. 

This can be done in two ways: Filing a quiet title action, a lawsuit that establishes the buying party's title or claim in the property, effectively silencing all claims to the title (such as a mortgage of the prior owner). A quiet title action can cost up to $3,000 depending on the state and can often take several months to complete. One must order a title certification with a tax title curative consultant and confirm the sale and tax foreclosure process's correctness. After verifying everything, one can work with a title insurance agent. This will effectively clear the property's title. The entire process can be done in as little as one month and usually costs $1,500 to $2,250.

Before Buying Tax Deeds

Sales of properties by tax-distressed owners can be a very good deal. With that said, you'll need to find out if your real estate investing opportunity is going to be worth it. Check the property location beforehand, because you might be buying something worthless, like purchasing a piece of land that is routinely flooded. If you are able to acquire and own a piece of land legally, you can participate in property auctions as well. But, you'll have to have cash on hand or in easy access, because auction sites will usually require that those who win the bidding on their chosen properties to pay a down payment or the full amount in a short span of time, if not cash up front. This is not an investment to be made for those without capital.

Most counties hold tax lien auctions on an annual basis. You'll want to contact your local county to find out when their tax lien auctions are held so you have time to prepare. In particular, you will want to learn about how the county conducts its auctions, including requirements for bidding. 

These days, most counties and other municipalities hold tax lien auctions over the internet. Typically, you have to register ahead of time for the right to participate in the online auction. You can expect to pay a registration fee for this, so it's important to factor in calculating how much you stand to make. The fee varies from place to place but is usually around $100.

Once you're registered, you will be assigned a bidding identification number and given login information. When the auction starts, you will be able to bid on the certificates that interest you. Counties typically release lists of the tax lien certificates available for auction a few weeks beforehand. It's crucial to obtain this list and investigate it carefully. That's because you need to perform due diligence to ensure that the certificate is worth your while. Most of the time, this involves finding out the condition of the underlying property.

After obtaining the list, whittle it down to options that look the most promising to you. First, set a budget, and then eliminate any certificates that exceed it. Next, choose a property type to focus on. For example, if you are mostly interested in interest income, you'll want to focus on tax lien certificates on single-family homes with mortgages. Some investors choose to focus on commercial properties or on undeveloped land. There are pluses and minuses to all of these options, so it's vital to learn the ins and outs before getting started.

While buying tax deeds can certainly be profitable, it can also pose some risks if not done correctly. There are several things to know about and research before bidding on a property at a tax deed sale. Below are a few essential items to take care of.

When you purchase a tax deed, you are buying a property without getting inside in most instances. It is possible to assess the property's condition from the exterior, but in general, you will be able to see the interior condition. Because of this, some tax deed investors assume the property is in poor condition when assessing the value of the property using those that are nearby properties. If the property is in better shape than anticipated, the discount will only increase.

Those new to tax lien investing should be wary of getting into bidding wars and overpaying for the value of a property. Once you've established a verifiable property value, it's pertinent to determine the maximum amount you want to pay for the property, considering the possible work it needs or the rental income you could collect. 

You may want to also set your maximum bid at a percentage of its as-is value. Regardless of which methodology you use, if you are an experienced investor, you will go into the auction knowing your absolute maximum bid. If the bidding exceeds that price, pull in the reins. One of the biggest issues you need to avoid in tax deed investing is accidentally overpaying for a property.

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.

Before beginning, it is crucial to define what a tax lien is. 

The county within the property's location will usually conduct tax lien sales auctions. For a property to satisfy auction requirements, it must be considered tax-defaulted for a defined period of time. Instead of bidding on a specific amount for the property, the interested parties will bid on the interest rate they want to receive. The investor who bids the lowest rate wins the auction and is issued the tax lien certificate.

Basic Steps

Next are the necessary steps an investor takes:

• Find a Tax Sale List
• Quickly Narrow the List
• Due Diligence
• Make the Investment
• Exit
• Find a Tax Sale List
• Rate of Return 

Tax liens and deeds are sold by municipalities at the county level with 3,000 counties nationwide. Those counties get narrowed by investors via investment type: tax liens, tax deeds, or redemption deeds and then further by the rate of return, accessibility ease, and investment ease.

There are two essential lists investors can get for each county: pre-auction list and over-the-counter lists. The investor finds these lists by state and county. Because we are dealing with real estate specifically, the lists are broken down by geographical county or municipality. There is one way to get those lists: the county. Investors can get those lists directly from the county through the county's public notice or investors from an aggregator like our website. Most websites charge per download, but we do not. We will not go over how to find a list in detail again.

Another thing to remember is scheduling. To get a pre-auction list, you must know when the auction is being held. You should know when the auction is ending to get the updated list as soon as possible for over-the-counter investors. Most tax lien counties have their auction only once a year and on about the same date every year. Tax deed and redemption deed counties tend to hold their auctions usually once every month.

Quickly Narrow the List

Once the list has been acquired, download it from our website or contact the county directly and see many possible investments. Not all of the investments will be right for you. Some might be expensive, commercial property, vacant land, and some may have low property values.

First, the investor needs to use the Quick Glance Method to narrow the list for potential investment. The investor will primarily look for three things:

• Investment Cost
• Property Value
• Property Type

After quickly narrowing the list, the investor has narrowed the list from 20,000 potential investments to a manageable amount. Maybe that number is 20 and maybe 200. You quickly learn that the fewer you have, the better since the next thing you need to do is perform due diligence.

Due Diligence

After you narrow your list to a manageable number of potential investments, you need to narrow the list to investments you are willing to buy. We do this by performing due diligence or more in-depth research.

You can use a few tools for due diligence are the county records (usually found online through the county assessor's website as shown in past videos), or visiting the county if you want (looking at physical documents or using the county's public computer system). We will usually use Zillow and Google Maps to compare images and estimated potential investment values. Using a mapping service allows you to see recent photos making travel unnecessary in some cases.

Investors buying tax deeds may want to get a title search on the property to ensure there are no federal liens or other red flags on the property. During due diligence, the goal is to narrow the list further to find investments that closely meet your investment criteria. Before spending your money on a tax lien certificate, you should know that a valuable property backs your investment, at least one with enough value to merit your investment on the front end.

If you buy a tax deed: Know exactly what that property is, the property type, the neighborhood, sale history, if there are other liens against it, etc. Get rid of any investments that you have big questions about.

Make the Investment

Now that you performed your due diligence and know what properties you want to purchase, you need to invest.

If you are purchasing at a live auction, register by contacting the county. Find out if forms need to be filled out beforehand and if a deposit is required. On the day of the auction, you must have your investment work done and bid limits set. After the auction, you will receive your tax deed or tax lien certificate on all properties you win.

If you invest post-auction, you call the county to speak with the sales official. Ensure the tax liens or properties you are interested in are still for sale and find out what rules you must follow to buy over-the-counter in that county. Usually, this means sending a cashier's check to the county with a note listing the tax liens or properties you want to buy. The county will then mail a receipt showing your investment listing the parcel number and interest rate you will make during the investment.

What Is a Rate of Return (RoR)?

A rate of return (RoR) can be defined as the net gain or loss of an investment over a predefined period of time, equating as a percentage of the investment's total cost. By calculating the rate of return, you are determining the percentage change from the beginning of the period until the end.

Understanding a Rate of Return (RoR)

Rate of return (RoR) can theoretically be applied to any investment. But it will usually apply to real estate, bonds, stocks, and possibly even fine art. RoR works with any given asset, provided the asset is purchased legally and eventually produces cash flow at some point. Investments are evaluated on past rates of return, which can be compared against the value in assets of the same type to determine which investments are the safest bet. Many investors like to decide on a required rate of return before making an investment choice.

Rate of return can be defined for any investment. For example we can take the idea of purchasing a home as a primary example to calculate the RoR. If you buy a house for $250,000 and six years later, you decide to sell the house for any reason. It could be that you need to move into a larger home. You can sell the house for $335,000, after deducting any realtor's fees and taxes. 

The next step to understand RoR is to account for the time value of money (TVM). Discounted cash flows will take the earnings of investment and discount each cash flow based on a discount rate. A discount rate represents a minimum rate of return acceptable to the investor, or an assumed inflation rate. In addition to investors, businesses will often use cash flows to assess the profitability of their investments. Assume, for example, a company is considering purchasing a new piece of equipment for $5,000, and the firm specifies a discount rate of 5%. After a $5,000 cash outflow, the equipment is used in the business's operations and increases cash inflows by $1,000 a year for roughly four years. 

The business applies value table factors to the $5,000 outflow and the $1,000 inflow each year for four years. The $2,000 inflow in year four would be discounted using the discount rate at 3% for five years. If all the adjusted cash inflows and outflows are greater than 0, then the investment is considered profitable. A positive cash inflow also means that the rate of return is higher than the 3% discount rate. The rate of return using a discounted cash flows calculation is widely known as the internal rate of return. Internal rate of return is a calculable discount rate that verifies net present value (NPV) of all cash flows from investment equate to 0. IRR calculations will depend on the same formula as NPV does and utilize the time value of money (using interest rates). 

How to Exit

Once you have your lien certificate, you should set a reminder for the end of the redemption period, then file the certificate somewhere safe. Then, you wait for a check from the county. After you receive the check, you have made your exit. In some cases, the property owner may not redeem during the redemption period. You should be ready to foreclose and then sell or rent to exit if this happens. When you buy a tax deed property, you have more options on your exit. As we talked about in a previous session, you can flip it, fix up and sell it, fix up and rent it, live in it, sit on it, etc. It is crucial to plan your exit before investing.

Buying your first tax lien certificate can be a very intimidating subject to tackle. That's why we are here to help concisely explain the ins and outs to you.

What is a Tax Lien Certificate?

A tax lien certificate is a certificate of claim against a property with a lien on it due to unpaid property taxes. Tax lien certificates are typically sold to investors through an auction process.

When property taxes are due, the municipality will issue a tax lien. When you pay your taxes in proper time, the lien is removed. If you don't pay your taxes, the town or county you reside in will auction off the tax lien certificate to investors. That investor will then have to pay the taxes on behalf of the property tax owner.

A property's location will usually dictate tax lien sales auctions. For a property to meet the criteria, it must be considered tax-defaulted for a minimum period. Instead of bidding on an amount, parties who are interested in the property will then bid. The lowest rate will win the auction and will then be awarded the tax lien certificate.

Once You've Bought a Tax Lien Certificate

After an investor receives a winning bid for a specific tax lien certificate, a lien is placed on the property. A certificate is issued to the investor that will detail any remaining taxes or penalties on the property. It is important to note there are only certain states that offer tax lien certificates. Some states, like California, 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 will typically range from one to three years, roughly. The certification enables the investor to collect unpaid taxes with the applicable interest rate, which can vary from 8 to more than 30 percent, depending on the jurisdiction.

States that Sell Tax Liens

If you are interested in tax liens, the first thing to note is that only certain states sell them. Below is a complete list of states that have tax lien sales:

Alabama

Arizona

Colorado

Florida

Illinois

Indiana

Iowa

Kentucky

Maryland

Mississippi

Missouri

Montana

Nebraska

Nevada

New Jersey

New York

Ohio

South Carolina

South Dakota

Vermont

West Virginia

Wyoming

Yearly, counties sell more than 6 billion in new tax liens: whether it is a single-family home, a business, or vacant land, every property owner in the U.S. has to pay property taxes to the county.

Property owners sometimes fail to pay property taxes, so the county places a lien on the property and sells a tax lien certificate for the same amount owed to them by the property owner. This way, the county receives the needed funds to function. If the owner pays their delinquent property taxes plus the penalty, the county sends that money directly to the tax lien owner.

In this program, we have taught countless students how to participate in the primary market, purchasing tax lien certificates from the county through their live auctions. Buying on the primary market is still viable, but a new opportunity has surfaced through the Tax Lien Buyers Club with our direct buy certificates.

Banks, broad companies, hedge funds, and large institutional investors invest a great deal of money yearly in tax lien certificates. They follow the model we teach our students but invest hundreds of millions annually.

Mainly, these large investors buy tax lien certificates for the interest earned the first 2 years. Most of their tax liens get paid off during that 2 years. Most institutional investors have no interest in taking ownership of the properties. Can you imagine trying to foreclose and own thousands of properties every year? It is too much for them to handle, so they focus on the interest earned by tax liens. This is where we come in. We negotiate and purchase the tax lien certificates that remain through our relationships with these large investors and brokers. As the new owner, we can continue to hold them, collect interest, receive redemption checks, or start the foreclosure process.

A few years ago, we began letting our students purchase tax lien certificates from our private inventory. The students would then collect interest or start the foreclosure process as the new tax lien holder. What began as a few exceptions here and there became a large marketplace where students could only build entire investment portfolios from our inventory. While we still teach our students how to participate in the primary market, our direct buy certificates have set off as an opportunity for investors to get into foreclosure-ready tax lien investments.

How They Work

There are three parties involved in every tax lien transaction: Property owner, county, and investor.

When the property owner does not pay the property taxes, the county sells a tax lien certificate to an investor. We see more and more large institutional investors, hedge funds, large corporations, and banks buy as many tax liens as possible. This is primarily true in large markets such as Miami or Chicago.

Some states where counties do not hold a public auction, sell their entire portfolio using an RFP (request for proposal) to sell the whole portfolio to one investor. Counties like this model since they can sell everything in one deal, making it easier for them.

Large investors can sometimes bid to buy the entire portfolio in one swoop. They like it since they want to buy as many as possible and obtain more certificates, essentially doing the same work it would take to buy one tax lien certificate. These investors usually hold their lien certificate for only 2 years and then liquidate all remaining certificates.

Due to our well-established relationships with large investors, we purchase as many matured tax liens as we can. These are certificates that continually make interest and usually are past the redemption period. This means that most of our certificates are ready to foreclose. We can hold the certificates to earn more interest or start the foreclosure process to take ownership of the property, instead of waiting years for the redemption period to expire.

A few years ago, we started allowing some of our students to purchase tax liens from our private inventory and started allowing more students until it became one of our students' favorite ways to buy tax lien certificates.

Purchasing Direct-Buy Certificates

When clients buy tax lien certificates directly from us, we must speak to one of our portfolio management team members. These portfolio managers interview the client for how much money they want to spend on tax liens, whether the client wants property or interest, how much experience the investor has with real estate, etc.

The portfolio manager will dive into our current inventory to find certificates they believe will fit the client's criteria. Then they send the certificates along with a simple agreement to the client and call to discuss the portfolio, answer questions, and replace certificates when necessary. If the client approves, the client signs the contract and arranges payment with the portfolio manager.

When the agreement is signed, and payment is received, our administration team will start the assignment process, filling out transfer documents, communicating with the county and servicer, and possibly requesting additional documents from the client, depending on what the county requires. Our administration team will do most of the work, but the client must review and sign some of the documents.

From that point on, the client is assigned all interest in the tax lien certificates. This means all redemption checks go to the new certificate holder, and that the client can take ownership of the property they want. Our clients have loved purchasing through us since they can avoid the county, auctions, competition, and work with the counties. They love the help through the process to answer questions, complete agreements, interact with the county and servicer, and all the hard work. It is a simple way to foreclose ready tax lien certificates.

Purchasing Direct-Buy Certificates

Buying a tax lien certificate can sometimes prove to be a lucrative investment. Some of the certificates have a low price point so that you can buy some of them for a few hundred dollars. If you compare that to a standard investment like a mutual fund, it will often come with minimum investment requirements. Because of this, you have more leeway in diversifying your cash flow so that you can purchase more than one certificate at a cheap price. Finally, the rate of return is pretty consistent, so you're not going to have to worry about the market's volatility.

Some drawbacks of tax lien certificates include the investor's responsibilities to pay for the tax lien certificate in full within a concise time frame, usually 72 hours. 

Tax lien certificate investors also have to undergo significant research to ensure that the underlying properties have an accurate assessed value.

Many real estate investors who thought they knew everything about their chosen sector are surprised to learn about individuals generating double-digit returns with tax lien certificates. In some cases, these investors have licensed realtors who remember seeing the topic mentioned in continuing education classes. Still, they did not realize the profit potential they had missing out on. The reality of tax lien investing is that it is not limited to real estate professionals; similar to how Wall Street is open to the public, tax lien certificates and deeds can also be obtained are also open to everyone. 

Investing in tax liens can be very profitable, but we cannot say that this strategy to derive financial gain is for everyone. Real estate is at the heart of tax lien investing, but you will not find a marketplace for tax lien certificates or deeds because such an idea would not be legal or ethical. Even the real estate owned (REO) portfolios of banks that have taken possession of foreclosed properties cannot be compared to tax lien investing. The reason is that the underlying value of the financial instruments put on the auction block is not always definitive. 

Before we continue discussing the merits and caveats of tax lien investing, we may as well answer the question that serves as the title: The answer is yes, you can make money on tax lien certificates, and there are various ways you can accomplish this. We should also reiterate that there is no marketplace for tax lien certificates. Still, you have certain resources, such as Marketplace Pro software, which can point you in the right direction concerning investing opportunities.

What Kind of Investor Seeks Tax Lien Certificates?

Tax lien investors are pretty much the same as those who get into stock or commodities trading; they look for opportunities, evaluate proposals, consider the risks at hand, and hope for the best. Perhaps you have heard the analogy of Wall Street being a perfect information game? This means that all market participants have access to the same information, but this does not make stock trading the same as chess.

The vast majority of beginners who enter Wall Street do not have the same level of experience or even the same level of information access as institutional investors. A day trader has a lot more to lose when compared to a mutual fund manager. In the case of tax lien investing, a licensed realtor will have a better shot at becoming profitable when compared to someone who has never entered a lien certificate auction or a sheriff's sale. This is not to say that you cannot catch up to a realtor in terms of tax lien investing knowledge; in fact, you are taking an important first step by reading this article. 

The type of investor who seeks to profit from tax lien certificates is usually a smart and curious individual who is not afraid to operate in a sector for which there is no marketplace. Some people compare property deed investors to house flippers, but there is a marked difference between the two. Flippers operate on a marketplace; the run-down properties they improve and sell are either on the Multiple Listing Service (MLS) or meet the criteria to be listed therein. There is no MLS for tax lien investors; however, software solutions such as Marketplace Pro inject MLS functionality into the tax lien investing world.

What Tax Lien Certificates Really Are

On the surface, tax lien certificates are easy to understand because they originate from the failure to pay property taxes. The taxes we spend on the lots, homes, and condos we own are used to fund municipal programs such as school districts, parks and recreation, libraries, road construction, and many others. If we fall behind on these obligations, the revenue collection agency has the right to file a lien on our properties; this is done to collect delinquent taxes at some point down the line. 

A property tax lien is a legal claim or a right to an equitable portion of the property. The revenue collector has the statutory right to file these liens without court opinion. Like other situations in which liens are filed against a property title, they must be satisfied and cleared when the property is sold, which could take a long time. Depending on the legal jurisdiction, a homeowner could stop paying property taxes for years and finally pay them off years later at the closing table. Naturally, this is not a good situation for the revenue collection agency because county and state budgets are drafted each year. 

A much better situation for revenue collectors is to enlist investors' help by offering certificates at public auctions, which in some counties, boroughs, parishes, and townships are called sheriff's sales. In essence, a tax lien certificate is a financial instrument that assigns repayment of delinquent taxes to an investor. If you think about it, this is a brilliant way of generating revenue. It also gives delinquent homeowners some breathing room because the certificate elicits a new repayment schedule. 

At the tax lien certificate auction, you are bidding on the interest rate that the homeowner will have to pay the new lienholder, which happens to be the winning bidder at the auction. Technically, tax lien investors start as certificate holders who can potentially become lienholders, which can occur when the homeowner fails to satisfy the terms of the certificate, but this may require the tax lien investor to initiate foreclosure.

Making Money With Tax Lien Certificates

If you register as a bidder to attend a courthouse steps auction, and if you walk away with a tax lien certificate, you will be in a position to receive payments and enjoy interest rates higher than 10%. The same interest is promulgated and can vary significantly from one county to another. In Denver, for example, you can make just a little below 10%; in Cook County, however, some Chicago tax lien certificates can fetch 36%. 

There is no telling how much a tax lien certificate will cost you. First of all, you have to keep in mind that these instruments are offered at auction, so the winning bid may end up being higher. Second, there is also the property value matter, and how far behind the homeowner has fallen. In some cases, the certificate maybe a few hundred dollars while it may be worth thousands in other cases. 

The bottom line of tax lien certificates as investments is that they represent debt. As with any other investment activity, you should expect some level of risk, specifically in the form of the homeowner not being able to repay or simply refusing to do so;. However, these situations do happen; they are not devoid of recourse. It is important to remember that each certificate has an underlying asset, which brings us to deed investing or taking possession through foreclosure.

Making Money Through Property Deed Investing

There is another way you can make money from tax lien certificates, and it involves redemption. We already mentioned that state laws set interest rates; we will now go into repayment terms, foreclosures, and deed investing.

Most states give homeowners no more than three years to repay investors who hold tax lien certificates. Should the term come to an end without satisfaction, the certificate holder becomes a lienholder who can file for foreclosure. Should you prevail as a plaintiff in a foreclosure case, you may be able to take possession of the property and hold title. 

In some states, revenue collection agencies can put deeds on the auction block. In this type of auction, participants are bidding for the right to get their name on the property deed, which means that they have a more direct path to ownership, which may not involve filing for foreclosure. This is what many people think about when they hear about properties being auctioned off because of unpaid taxes, but there is quite a bit of misinformation in this regard.

Deed investors do not always walk out of the auction with clear title to the property. County revenue managers who set up property deed auctions try to make the process seamless and painless, but this may not always be possible. In some cases, the winning bidder of a deed may also inherit outstanding liens, but they may also be considerably less than the property's market value. 

It would not be accurate to say that deed investing is a smarter option to pursue instead of tax lien certificates. Both strategies offer the assurance of real estate as collateral, but they are not the same as holding a municipal bond that pays you interest and has a face value that other investors will pay for in an open marketplace. In some cases, the collateral value may not only be underwhelming but also disappointing, especially when you learn that there are encumbrances to title and many other liens to clear. In other cases, the underlying asset may be an undeveloped lot not far from the Mojave Desert, thus making it less than attractive to prospective investors.

The bottom line of tax lien investing is that you can make money from it, but you will need to conduct proper research with the right tools. To this effect, Marketplace Pro is the closest you can get to an MLS-like system to identify properties worth pursuing at auction.

To learn more about Marketplace Pro software, please get in touch with our office today so that we can arrange a real-time demonstration.

As of early 2021, tax lien investors in the United States can look for certificate or deed opportunities in virtually any state. Even though the U.S. does not really have uniform property laws across all jurisdictions, legal analysts believe that statutory similarities will continue to develop over the years, thus opening more doors to investors who seek to profit from tax lien auctions and sheriff's sales. 

Not all states handle property tax delinquencies in the same manner, and this has a lot to do with the way their laws governing property are formulated. In some cases, revenue collection agencies at the county level will operate differently with regard to sheriff's sales and the issuance of tax lien certificates, but they all have to abide by state laws. The reason why there is no uniformity in the management of tax lien certificates has to do with property, probate, and even business formation statutes. Some states are more flexible than others in terms of how they allow residents to transfer real property; at the same time, some states are reticent to enact adverse possession that may lead to a deed being placed on the auction block.

As can be expected, all states have a real and present interest in collecting property taxes in a timely manner; after all, this is how they formulate their budgets. The National Tax Lien Association promotes the ethical, lawful, and competitive management of tax liens, and its directors have noticed that many jurisdictions are taking steps in the right direction to the benefit of prospective investors.

With all the above in mind, here are some states that tax lien investors should pay attention to as they look for lien certificates and deeds that are worth bidding on.

Florida

We have to mention the Sunshine State at the top of this list for various reasons, and the most important is the diversity of real estate. Florida is a place where there is no shortage of waterfront properties; some of them are situated along the Gulf of Mexico while others face the Atlantic Ocean. You also have lakes, rivers, and even the Florida Keys with homes that offer views of the Caribbean Sea. For the most part, Florida is a middle-to-high income jurisdiction, which means that homes tend to be on the nicer side.

There is still plenty of undeveloped land in Florida, and builders are always looking for the next spot where they can start construction of a new gated community, subdivision, or apartment complex, which is why many tax lien certificates in Florida are for undeveloped lots. Socioeconomic activity in this state is always high; Floridians tend to go through ups and downs in terms of employment and business opportunities, and this explains the high rate of property tax delinquency. In many cases, foreign buyers may have acquired a lot or a condo unit near the beach as an investment that did not work out, and which they chose to abandon in the end.

The typical interest rate on Florida tax lien certificates is 18%, but investors should expect plenty of bidding competition in some of the most attractive countries such as Broward, Palm Beach, Miami-Dade, Pinellas, Manatee, and Sarasota. When you register for a sheriff's sale in Florida, you should not be surprised to see bidders fighting for a tax lien certificate that is only worth about 8%; this happens because quite a few Florida properties are very attractive, and everyone hopes to get a shot at filing foreclosure papers and getting their name on title.

Florida is a judicial foreclosure state; this means that you have to go through the courts in order to gain possession of the property if the homeowner failed to repay the certificate within the legal term of two years. Going through a foreclosure in Florida used to be a nightmare because of the numerous law firms that practice foreclosure defense, but this is no longer the case. Circuit courts across the state have gotten their act together with regard to handling foreclosure cases, and they no longer fall for frivolous defenses. 

Anecdotally, some tax lien investors who have sat down with Florida homeowners to learn about their situation find out that they are foreigners getting ready to return to their home countries; in some cases, they are families who fell prey to predatory mortgage brokers, and they end up becoming frustrated with high payments. In these cases, investors may be able to convince the homeowners to move out in exchange for a cash payment; this would make the foreclosure process easier because it eliminates the need for eviction. Another advantage of investing in Florida tax liens is that you can retain a law firm that can not only represent you in foreclosure court but also work towards giving you a clear title to the property once all liens and encumbrances are dealt with.

Finally, it must be mentioned that many counties in Florida hold tax lien certificate auctions online; plus, deed auctions are also held for properties that can no longer go through the certificate process, which means that you can actually walk away from the auction with your name entered on the deed, thus putting you a step closer to the title.

Maryland

Similar to Florida, the tax lien interest rate in Maryland is 18%, but there is no regressive bidding at the auction; instead, investors bid on certificate premiums, but only a portion of the premium must be paid initially. Unlike Florida, only a few counties in Maryland hold online tax lien auctions; the most enticing in this regard is Baltimore, which has a huge annual event. In some Maryland counties, the repayment term is only six months, which means that you could be filing for foreclosure sooner than expected, and the process can be handled out of court through non-judicial means, but this does not mean that it will always be easy. 

Uncooperative homeowners in Maryland have ways to move a foreclosure case to the courts with the right lawsuit filing; when this happens, things could get complicated for the tax lien investor unless he or she is able to retain adequate legal representation, especially if the homeowner is basing the lawsuit on an obscure title issue. It really pays to conduct due diligence in Maryland, especially around the Baltimore area, because quite a few properties have fallen to severe levels of distress. 

The greatest advantage of Maryland for tax lien investors is that part of the state falls within the Northern Virginia and D.C. housing market, which boasts some of the highest property values in the country because of high demand.

Arizona

There are not that many counties in the Canyon State, and only six of them are set up for online tax lien certificate auctions. Maricopa County is where all the tax lien action is, and bidding starts at the 16% interest rate, but competition is not as fierce as in many Florida counties. Arizona is known to be a housing market where homeowners are interested in keeping their properties, particularly in vibrant cities such as Phoenix and Scottsdale, so you have a good chance at collecting double-digit interest rates. Quite a few of the listings that end up in Arizona tax lien auctions are undeveloped lots near the desert; this is when due diligence pays off because some counties will expect certificate holders to continue making tax payments past the term and until the end of the year.

Indiana

Some tax lien investors find Indiana to be a confusing state because some counties offer two auctions, one of them handled through the County Commissioner's Office. You are virtually guaranteed a double-digit interest rate on Indiana lien certificates, and the amount due is often reduced if the matter is elevated to the Commissioner's Office. The normal repayment term is 12 months, but it can be reduced to just 120 days in some cases. More Indiana counties are moving their tax lien certificate options online. 

Indiana is a judicial foreclosure state, but the courts tend to be far more organized when compared to other states such as Florida. The Indianapolis housing market is vibrant and active, which means that there are good opportunities for the right investor.

Scouting Tax Lien Auction Opportunities Across the U.S.

Now that you know some of the best states where it makes sense to invest in tax lien certificates, the next step you should take is to contact our office and arrange a real-time demonstration of Marketplace Pro, a software solution that can give you an edge by showing exactly where these properties are located. Similar to the Multiple Listing Service (MLS) used by realtors in the United States, Canada, and Mexico, Marketplace Pro gives you not only the location of properties on the auction block but also additional information that can guide you towards the right decision.

Getting the right information prior to registering for a tax lien auction can save you considerable time and money.

When you get to see what Marketplace Pro can do, you will be able to take your tax investing activities to the next level. Contact us today for a free software demo!