This is in reply to a question from Gina on the previous blog post “New Jersey Tax Sales“, but I thought that it would also be good information for everyone else, especially for those of you who invest in New Jersey.
First of all for the benefit of everyone else on who’s reading this blog let me explain what a sewer lien is. Delinquencies other than property taxes may be sold at a tax sale, like unpaid utility liens, sewer, water or garbage charges. basically anything that the local government (township, municipality, county or taxing district) would assess the property owner. These can be sold at the tax sale and tax lien certificate is issued. It is the same as purchasing a tax lien, the lien-holder is in first position and can foreclose on the property if the lien is not redeemed within the redemption period. The lien-holder also has the ability to pay the subsequent utility charges (or even the subsequent taxes) if the property owner does not pay them on time.
Many states give you the opportunity to pay the subsequent taxes and collect the maximum or default interest on your subs. The exception to this is Florida: Florida counties do not allow you to pay the subsequent taxes and they will sell the lien each year in the tax sale. So you don’t get that opportunity there, you just have to try to purchase the lien each year.
In NJ the maximum amount of interest (18%)is paid on subsequent taxes after the property owner is $1500 delinquent. Since sewer liens on single family properties are usually only between $200 – $500, you may not get the maximum interest on your first couple of subsequent tax payments, but you will get 8% interest on all your subs until the owner is $1500, after that you will receive 18% on your sub payments.
Sewer liens can be a good investment for a couple of reasons. First they are usually smaller liens and the institutional investors rarely bid on them, so they are a little less competitive and you can start investing with smaller amounts. Secondly when you own a sewer lien (or other utility lien) you can pay the subsequent taxes, as well as the subsequent sewer charges if the owner doesn’t pay them. I’ve had a few liens that I originally purchased as small sewer liens, and then later when the owner of the property stopped paying the taxes, I was able to pay the taxes. Adding thousands of dollars to my original lien and keeping the property out of the tax sale. So I got 18% on most of money and didn’t have to bid at the sale!
Buying sewer liens is one the strategies that I use to keep my tax lien portfolio in the double digits!!
Have you invested in sewer liens or other utility liens? What do you think? Leave a comment and let us know.