Tax Lien Guru Interview SeriesUnited Tax Liens Blog

The Tax Lien Guru Interview Series: #5 What is A Tax Lien

The Tax Lien Guru Interview Series: #5 What is A Tax Lien

Eric, I've been around real estate for a real long time, and I kind of feel like I know the language of flipping properties and commercial buildings and everything that way. But when I get into tax liens, it's almost like I have to learn a new language. Tell me about that language. 

It is its own unique language, and you do want to learn it if you want to be a successful tax lien investor. One of the first things you need to understand is: what is a tax lien to begin with. As property owners wherever we are located in whatever county we are in and whatever start we're in–we're required to pay our property taxes. Our property taxes are due at different times of the year, depending on where you live. 

I will ask you this question: what happens when you do not pay your property taxes. You're going to get those letters in the mail that says your delinquent. What happens is that delinquent tax will actually become a tax lien. Now that allows us as investors to strategize how we can make money on that. Now that tax lien is then auctioned off. And as investors, we can go in and bid to get that actual tax lien, and then that's when it becomes a tax lien certificate. So when you hear me talk about tax lien and tax lien certificates, know that it's pretty much one and the same but it's that actual lien has become a certificate against that property and we'll talk more about how that works. 

Can you tell us a little about the common terminology used when it comes to tax lien investments?

So we're going to talk about some terminology, which will give you a little bit of a taste of this different language that we're talking about when it comes to tax lien investing. So the first thing is, there is a term called redemptive amount. A redemptive amount is basically what you will pay for that tax lien certificate or that tax lien, if you will. And so what happens is, it's going to be the original amount of the delinquency, plus the interest until the current time. And so that's our redemptive amount. Now the next term I'm going to talk about is a redemption period. Now a redemption period is slightly different in every state. For example, I'm going to give primary examples in the state of Florida because they are super investor-friendly. 

They're an administrative state which is what we will talk about later on. But if you are interested in investing in other states, you can find this information out. But let's talk about the redemption period. So for me as an investor, if I want to take action and file a foreclosure based on the actual tax lien, then I have to wait a time period from the day I actually originally picked it up from the auction. I have to wait two years in the state of Florida before I can actually file a TDA and start the foreclosure process on that property. And so the redemption period is important to know, because that's how long you have to wait until you can actually start the foreclosure proceedings. So that's a valuable thing to understand. 

What about this term, “redemption” that comes up a lot with tax lien investing? 

Now redemption is such an excellent word. Redemption simply means that you get paid. There's a lot of different ways that you can get paid as a tax lien investor. You can have the actual owner of the property pay their delinquent taxes. You could have another investor out there when they file the TDA to pay us off when they pay the rollup amount. Or we could go to the actual deed process where we file the TDA, take it through. Maybe the owner pays then, or maybe we could actually end up picking up the property. Now, if no one bids at the deed auction, we actually become the property owner for the amount of our investment in the taxes. Pretty cool huh? And that allows us to eventually pick up a property and even increase our returns even more on tax lien investing. So a couple more things when it comes to this language of tax liens. 

I hear a lot about the term face amount, what can you tell us about that? 

Let's talk about face amount. Face amount means the original amount of the tax lien delinquency. You have the face amount and then you have the redemptive amount which we've already talked about. And then we also have to note something: it's called a certificate life. A certificate life is, how long will that tax lien be in existence. Now in the state of Florida, it's seven years. So from the date that it becomes a certificate until the date it expires. Expire means death, it's done, it no longer exists. Remember we have to wait two years until we can take action on it, which is that redemptive period and so we have that five-year window where we can go ahead and move forward enforcing the foreclosure. And that essentially means filing a TDA or a tax lien application. Now give an example, another state like Arizona, it's 10 years. And so you'll want to know about the different areas you're investing in when it comes to your tax liens. Let's talk about this. Let's say you did want to focus in and force this foreclosure to take place. 

What is a rollup, how does that relate to face amount?

In this situation, you're going to have to pay what's called a rollup. This rollup is any other subsequent tax liens that are on that property, you have to pay all of those. So maybe there are two others. So you've already purchased your tax lien certificate, so maybe there's two others there that you've gotta pay off and that's part of your rollup. And then you can file your TDA or tax lien application to start the actual foreclosure process. Then you have that option when it goes to the tax deed auction. We can talk more about tax deeds later. But that tax deed auctions are typically held in each county towards the end of each month. And that process is not as long as one would think. It's typically between a 3 & 6-month process to actually go through that entire foreclosure process. For an example in the state of Florida. So we do want to understand how to identify and do our homework. Like on tax liens just like if we were doing a rental property we want to figure it out. So we have to get the property address and the parcel and really dig a bit deeper into what's taking place. 

One of the things that stands out is, we want to see where we are. So if we have our rollup, remember that's the amount we pay on the back taxes compared to the assessed value, which can give us one determining factor on where we stand on that specific investment on hey what are our chances to pick it up. If it goes to the TDA, what are our chances that the owner redeems? One of the simple calculations that we can take, is the total amount of all the owed taxes divided into the assessed value. We like to call that HLTV — lean to value or horizon lean to value if you will. 

Can you give us an example of the way that these technical terms relate to each other?

Basically, what you do is, for example, let's say you are looking at a vacant lot in Florida and your rollup is 5,000, and your assessed value on a property–now remember the assessed value, people can argue that assessed value is actually much less than the market value. But let's say your assessed value is 10,000 and so if you have a 5,000 rollup, or the delinquent taxes and you have a 10,000 assessed value, that's going to be a 50% HLTV. And all that's tell you is that if you end up picking up this property, you're going to pick it for 50% of the assessed value. 

Now is that a good deal? Sure it is. We can get into all kinds of things with strategies and plans. That's why you want to dig deeper in understanding your education and dig deeper in understanding how tax liens actually work. You want to examine yourself and see: what kind of budget I have to invest with? As part of that you may so OK I have 20,000 to work with, or 100,000, or 500,000. Whatever that looks like. And then you're going to go ahead and adjust your strategy according to that. Because you will have a certain amount that you invest in your certificates, and you'll have a certain amount that you'll pay in reserves with your rollups. 

So again, like I said, I know this is a different language and learning a different language can be a little bit difficult at times, but hang with me. We're going to cover a couple more points, and we'll talk more about tax liens. 

Can you tell us about how each state differs when it comes to tax lien investing?

Alright, so let's talk a little bit about the different kinds of states. The state of Florida for example is what's called an administrative state. In an administrative state, what is required for a foreclosure on the tax liens is that you simply go to the county and file what's called a TDA. Which is a tax deed application. You do not have to go to court, you do not have to hire an attorney, which is a straightforward, straightforward process. Now in an administrative state, you do have to go to court, you do have to hire an attorney, and the process takes more time. So you'll want to find out, get that information on states where you are investing and figure out how to do that. 

A couple of other things you will want to learn to make purchases on these. You will need to get what's called a bitter number. 

What is a bitter number? 

Bitter numbers are easily obtained through the county you are making purchases from. You can get them from the actual tax assessor or collector's site of that individual county. But you'll need that because that will associate with the name or tender that you're purchasing under. 

What is the difference between administrative or judicial when it comes to tax liens? 

Alright, let's talk a quick clarification on administrative vs judicial. Every state is different, and some states have both. Now administrative means that you go to the county to file your TDA (Tax Deed Administration) and that's how the foreclosure process works. Now in a judicial state or a judicial state, or a judicial situation, you have to hire an attorney and take it to court. Now it's more costly and time-consuming on the judicial side of things. 

That's another reason why we like administrative states such as Florida. Then from there, I would say you set your goals. Once you understand the language, you may say I want to hit this amount per month as a return—then figure out what that looks like. I need to purchase six certificates a month and then I need to file two TDA's a month for me to get where I want to go. Here's the thing, get more educated about this new language. Tax liens are an exciting way to enhance your real estate portfolio and your real estate investing experience. To learn more about it, get educated in the process and best of success with your tax lien investing. 


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United Tax Liens is a group of experienced, active investors providing everyday people with access to one of the best Real Estate Investment vehicles available today.

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