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.
