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.
By Joanne September 24, 2011 - 7:52 pm
Hi Tory,
In New Jersey you don’t pay the subsequent taxes on a monthly basis but quarterly – that is 4 times a year. You can only pay them when the owner of the property is considered late, that is 10 days after the payment is due. Some other states will only allow you to pay the subsequent taxes or subsequent utility payments once a year. Usually no notifications are sent to the investor, you need to contact the tax collector to find out when and how much taxes or utilities are due.
In the Tax Lien Manager software program that I use to manage my tax lien portfolio, there is a customized letter to send to the tax collector requesting the amount of subsequent taxes (or subsequent utility payments) that are due, and affidavit forms to send in with your payment.
By Tory September 23, 2011 - 2:07 pm
Hi Joanne,
Quick question. How must one go about paying the month to month subsequent taxes on a sewer lien once the actual tax lien certificate has been purchased? Will I get notification every month via mail and/or email, phone call etc?
By logan September 20, 2011 - 11:02 am
im in new jersey how long is the redemption period before i can forclose and what are the steps to forclose on the property
By Joanne September 21, 2011 - 10:02 am
Hi Logan,
The redemption period in New Jersey is 2 years. You need to use a tax lien attorney to foreclose on the property. The first step in the process is that notices have to be made to the owner and all lien holders of the property. Your attorney will do a title search and send out the notices. Most of the time after the notices are sent you will be paid on the lien, if not then your lawyer will proceed with the foreclosure.
By Tanya September 16, 2011 - 9:09 pm
Hi again,
Sorry to bother again….just new thought coming up. What’s happen if the new owner knock down the old house and build the new one on the property? Is that mean after 2 years, I still can foreclose on the property with new building?
By Tanya September 16, 2011 - 9:04 pm
Hi Joanne,
Thank you again for the answer in detail. You are the best. I think that was the case. They bought in cash, I believed so no mortgage and lawyer involved. They contacted the town to ask for the redemption costs, but they didn’t pay for it yet. So I guess I just continue to pay for sub- tax then.
Best Regards…
By Tanya September 15, 2011 - 6:36 pm
Hi Joanne,
I bought a tax lien on June this year and paid for Sub-tax. I believed that once the tax lien record, it attached to the property, right? And they cannot sell the property until they pay off the lien? Is it possible that the owner can still sell the property? The property record under previous owner who pass away and had someone as executor of the property. He sold the property on Aug 18. I got a phone called from the county last month said that they wanted to redeem the lien, but when I called the town two weeks ago, they said that no one redeem it yet. Now I see that the deed record to the new owner. Do I need to do anything? Thanks for your help.
By Joanne September 15, 2011 - 11:10 pm
Hi Tanya,
The lien should have been paid in order to close on the property, however if they did not do a formal closing with a lawyer or a title company the deed could change hands without the lien being paid. It doesn’t matter who the owner is when the redemption period is over they will have to redeem or you can foreclose.
By Elizabeth September 13, 2011 - 9:49 am
Joanne,
I am looking at a property that is going up for sale at the end of this month due to tax lien. I spoke with the county and the figure that they provided was for the 4 years of taxes due, this would be the minimum bid. I have found out that there are sewage and refuse liens on the property. Will I be responsible for paying those at the time of the bid? How are these handled? Thanks!
By Joanne September 13, 2011 - 12:21 pm
Hi Elizabeth,
You didn’t tell me which state this is. Also is this property being sold in a tax sale, or (and this is what I would assume based on what you’ve said in your comment) is this a property that the county held the lien on and is now selling to satisfy the lien? You will be responsible for any municipal, county, or state liens on the property. Sometimes they are added into the minimum bid amount and sometimes you will have to pay them in addition to what you bid.
By Tory July 23, 2011 - 1:43 pm
Hi Joanne,
I actually read your article regarding Sewer Liens and it makes a lot more sense to me now. Seems like an excellent way to get your feet wet with liens and doesn’t require a lot of up-front cash. Are the Sewer Liens actually sold at the same auction as the Tax Lien on properties also. Or, are these completely two different auctions that one must attend. Are there online sewer lien auctions also. I would appreciate any references that you could recommend to me regarding sewer liens (i.e. books, articles, websites, online auction sites…etc.) Thanks in advance. This seems like the best way to when starting out.
By Joanne July 24, 2011 - 9:53 am
Hi Tory,
Again it depends on the state. In most cases the utility liens are sold at the tax lien sale. You can type the name of state into the search box on this blog to find more articles that pertain to that particular state. If you are interested in Arizona and Colorado as you had mentioned earlier, one of the online web sites that does a lot of auctions for both Arizona and Colorado is RealAuction.com. These are regular tax lien sales, there are no special sales for utility liens that know of. I give more specific information and training for online tax sales in the Buying Tax Liens Online course (http://www.buyingtaxliensonline.com) and in my members area (http://www.taxlienlady.com/MembershipMain.htm).
By Tory July 23, 2011 - 1:09 pm
Hi Joanne,
Thanks for the information, it was very informative and helpful.
Until now, I’ve only heard of liens on homes and land and definitely not water, sewer and utilities. I’m curious to know what are the outcomes if one doesn’t redeem on a water, sewer or utility loan. Of course with the lien on the home, if one doesn’t redeem then it is possible to obtain ownership of that home. But I’m not sure of the outcome with the others if the owner doesn’t redeem. Any help? Thanks in advance.
By Tory July 22, 2011 - 11:10 am
Hi Joanne,
I’ve recently visited some online Training Tax Lien Auction sites (Colorado and Arizona). While searching for properties that I actually wanted to place a bid on, I noticed that a lot of the cheaper Liens were lots or pieces of land and not necessarily Liens on homes. It wasn’t until the prices reached at least $1000 (give or take) before the Liens were on homes. So I guess my question to you is that on average, how much is a Tax Lien certificate on a house? I know they vary greatly. But can one (a beginner), expect to start out purchasing a tax lien for as little as $200-$500 just to get their feet with in the business? Thanks in advance.
By Joanne July 23, 2011 - 6:53 am
Hi Tory,
Yes many of the cheaper liens are on vacant land, not homes. But you can find smaller liens on houses, particularly in states that also sell water, sewer and other utility liens at tax sales. Every state is different in how much taxes you pay for property; in some states property taxes are quite high and in others they are low. Also each state has different legal procedures as to how delinquent the property taxes have to be before they are sold in a tax sale. States also differ in how often taxes are paid. In some states property taxes are paid only once or twice a year and in others they can be paid quarterly. If taxes are paid quarterly and you only have to be delinquent for one year than a property could wind up in a tax sale that is only delinquent for one quarter of the year. If the annual taxes are only $5000, that would be a lien for around $1200. But if it’s the Northeast where it’s common to have to pay at least $10,000 in property taxes that would be closer to $2500. Think about it how much are the annual taxes on the property you live in. In you want a lien on a property like that in your state, plan on paying that much for it!
However I have built a portfolio of small liens – mostly sewer liens and liens on vacant land, that I have later been able to pay the subsequent taxes on. The original cost of most of my liens were between $200 and $1500, with most of them being at the lower end. That is because I particularly like utility liens on condominiums and duplexes and tax liens on vacant land. Although I don’t recommend buying tax liens on vacant land unless you can actually physically look at the property and make sure that it’s build-able by checking with the zoning authorities.
By Curtis July 20, 2011 - 9:56 am
Hi Joanne,
I purchased a tax lien in May 2011 (my first) in Frederick county, MD. Redemption period of 6 mths. Do you recommend any attorneys who are licensed in MD who can proceed with foreclosing the owners right of redemption?
By Joanne July 21, 2011 - 9:38 pm
Hi Curtis,
I don’t know of any attorneys in MD. You could google tax lien attorney MD and see if you get contact information for any tax lien attorneys there. Then contact any attorneys that you find and ask them if they do tax lien foreclosures and how much they charge and how long it typically takes to foreclose the right to redeem a lien.
By Tanya July 16, 2011 - 7:53 pm
Thank you, Joanne….You’re the best. ^_^
By Joanne July 16, 2011 - 4:54 pm
Tanya,
You need to record your tax lien certificate with the county clerk, but not any of your subsequent tax payments. For your subs you just need to submit an affidavit to the tax collector along with your payments. Also keep a copy of your affidavit because although the tax collector is supposed to keep it on file with your lien, sometimes they lose the affidavit.
When it comes time to redeem the lien do not hand over the signed certificate until you agree with the tax collector on the redemption amount. Make sure that the redemption amount is correct and takes into account all of your sub payments. If the tax collector forgets about one of your payments, you want to have a copy of the affidavit as proof of your payment.
By Tanya July 16, 2011 - 9:51 am
Thank you, Joanne
I’m in NJ. I have an affidavit on sub payments. I called the tax collector and asked if I will need to record the subs at the county office and she said no, but I remembered at tax sale the man who run the sale explained how the sale work and he mentioned that after purchase the subs tax that we need to record it. So now I’m confused.
Have a nice day,
Tanya
By Tanya July 13, 2011 - 7:05 pm
Hi Joanne,
I’m new to this tax lien investment. You did really good in explaining everything. But I have a question about the lien. I purchased one lien and did a research on it. I found out that the property tax(Deed) listed to a previous owner who might be deceased because it listed as person’s name as executor of…….whom list on Deed. Then it was another record showed that he(executor) sold property to new owner with no new Deed. My guess is they agreed upon themselves(might be relative or friend) since no record of sale and amount on mortgage, only notice of settlement documents. Is the lien still attach to property? Who will be able to redeem it? I just pay the subs tax on it. Also, do I need to file the record for the subs tax at the county or is it automatic add to the record of lien?
Thank you for your help,
Tanya
By Joanne July 15, 2011 - 12:08 pm
Hi Tanya,
Yes the lien is still attached to the property. When you purchase a tax lien, the lien is not on the owner of the property but on the property itself. Sometimes there can be a problem if the property changes hands after you purchase the lien and it doesn’t redeem. In order to get clear title to the property the new owner would have to redeem you and that is usually done upon closing. But if you have a sale without a formal closing as what seems to have happened in this case, then the property could change hands without redeeming the lien. Your lien is still valid however, and when the redemption period is over you can force payment or foreclose on the property.
Sub taxes are handled differently in each state so I would have to know which state you lien is held in before I could answer your question about sub taxes. It’s always better to have a record of the subsequent taxes that you pay and many states require that you submit some sort of paperwork with your subsequent tax payments. In some states you have to submit an affidavit as proof of your sub payments.
By Brian Templeton January 22, 2011 - 11:03 pm
Joanne,
So am I.
Brian
By Mike January 22, 2011 - 12:07 pm
Sounds great. I’m looking forward to it.
By Robert January 22, 2011 - 11:59 am
In my county, once taxes are defaulted on all special assessments (utilities, water, sewer, etc) are due immediately on the same lien which can make a $300 tax bill into over $1000 in a single lien.
By Joanne January 22, 2011 - 12:19 pm
Hi Robert,
You brought up some really good points in your previous comment. Those are 2 really good reasons why some people who try tax lien investing don’t make money at: paying too much for liens and not doing their research. I don’t ever recommend paying premium for sewer or utility liens and don’t recommend buying liens on vacant land that you haven’t checked out thoroughly first. Good points!
And something about utility liens that forgot to mention before is that in most states the if there are utlity liens and tax liens they are usally added together and sold as one tax lien certificate, although sometimes you have to write separate checks for the subsequent amounts; one to the utility and one to the taxing authority.
By Mike January 21, 2011 - 11:48 am
One last question.
Does it matter when you pay the subsequent taxes?
For example, quarterly installments versus an annual payment right before the next tax sale.
Thanks.
By Joanne January 21, 2011 - 7:49 pm
Hi Mike,
You have some excellent questions about sewer and utility liens. Instead of answering them here for you, I will either do another blog post to answer them or a short video. Give me a day or 2 to get that done for you.
By Mike January 21, 2011 - 11:31 am
Hi Joanne,
It seems that water/sewer liens can be big losers if the recording fees are greater than the returns. The returns on subsequent payments of water/sewer liens for one year might only be $20-40 and I have seen recording fees for $30. I guess your really banking on being able to pay the subsequent delinquent property taxes.
Also, when you say states give you the opportunity to pay the subsequent taxes what does that actually mean? Do you receive a notice that the owner was late on making payments and to what amount or do you have to dig through municipal records to find this information?
By Laura Kramer January 12, 2011 - 11:04 am
Thank you so much! It makes things so much clearer.
By Brian Templeton January 7, 2011 - 8:49 pm
Joanne,
Thanks for the sewer lien explainations, as I said before, I had
not heard about “utility” tax liens.
Brian.
By Laura Kramer January 5, 2011 - 9:13 pm
Firstly, thank you so much for your clear answer to my last question.
I want to let you know that, yes, all our properties are in New Jersey.
I have a few other questions, my boss was telling me that they auction off the debt and the investor can get less than 18% because of this auction. I really did not understand what he was saying. Do you know what he was referring to?
Additionally, he also told me that when we do finally decide to pay our water/sewer bills we should pay the newer ones first because this stops the high interest rates from accruing. Why is that I was not totally clear.
By Joanne January 7, 2011 - 11:22 am
Hi Laura,
Here’s what happens at tax sales in NJ. The interest rate is bid down at the tax sale. It can be bid down to zero and then premium is bid. But the interest is not always bid down that far, it depends on who shows up at the sale and what they want. I frequently get my liens at 18%, that’s why I stick to utility liens because everybody does not want those smaller liens and there’s less competition. Once the lien hold has the lien they may pay the subsequent taxes and get the maximum rate on the subsequent taxes even if the rate on the certificate amount was bid down at the tax sale.
Your boss wants to pay the current overdue utility amounts first before he get charged the default interest rate (8% until you are $1500 delinquent and then 18% on everything after that) but if the certificate amount was not bid down you could be paying 18% on the certificate amount. And in 2 years the lien holder can foreclose, so if you pay the newer utility bills without paying off that lien the lien holder can still foreclose on the property. If you are only managing these properties and are not listed as the owner of record, you will not be notified of the foreclosure, but the owner and the mortgage holder will be and it will make your company look bad.
I would call the tax collector and find out what the amount of the oldest tax lien – even though it’s for utilities, it’s still considered a tax lien, is, what the interest rate and is on that lien and the lien amount (the original amount of the certificate). Then you will know how much time you have to pay the lien before the lien holder can start foreclosure, and whether your paying 18% or 0% interest on the original certificate. Then you’ll know whether you need to pay that off first or not.
By Laura Kramer January 4, 2011 - 11:01 pm
Hi Joanne
I work for a property management company and we NEVER pay our utility bills that have tax liens on them. What are the consequences of that? Can someone take our property away because we don’t pay our water and sewer bills? Additionally, if we never pay our bills, how does the investor make money? Does s/he have to pay the taxes now?
By Joanne January 5, 2011 - 9:37 am
Hi Laura,
that all depends on what state your in. I live in Pennsylvania and if you the municipality collects any utilities such as your water, sewer or garbage bill and you don’t pay them for a couple of years. Your property could be sold at a tax sale. In NJ if you don’t those bills a lien will sold on the property, then after a couple of years the lien holder can foreclose. The owner of the property would be notified, and be responsible for paying the lien. Unless you have a lien on the property you may not be notified of any impending tax sale, or foreclosure and in these states, as well as in many others, yes someone can take your property, but not without notifying the owner and all lienholders first.
I have sewer liens on one particular property in NJ that I have held since 2002. I never bothered to foreclose because I didn’t have a lot of money into it, and I would just rather let it ride, continue paying my subs and let all that interest accrue. I will start the foreclosure process this year because now it’s accumulated to over $4000 that is owed to me. Since there is a mortgage on the property, even though the property owners have ignored letters that I have sent in the past. Once I notify the mortgage company they will most likely redeem the liens and if they don’t I can foreclose.
By Brian Templeton January 3, 2011 - 8:59 am
Hello Joanne,
The news that there could be utility (sewer) liens as well as
property tax liens was a surprise to me.
Brian
By Ganesh JK December 31, 2010 - 7:39 am
Hi Joanne,
I am Ganesh from India, currently working in Malaysia. I am interested in investing in Tax lien certificates. Do I qualify in the first place? How easy it is to manage from a remote place like Malaysia or India. After investment, should I spend time on following up like doing a research or due diligence?
Your advice / comment is highly appreciated.
with Thanks, Ganesh.
By Joanne January 1, 2011 - 1:08 pm
Hi Ganesh,
Yes you can qualify, you just need a US bank account and a tax ID number, which you can get on the IRS website at http://www.irs.gov. I think that the easiest way for foreign investors to invest in tax liens – and the most profitable way to do it for foreigners, is to invest in a fund or through a tax lien agent. You can click on those categories on this blog to find out more them and to get my recommendations.
By free articles directory December 30, 2010 - 6:34 pm
Great article . Will definitely copy it to my website.
By Joanne December 30, 2010 - 6:58 pm
You may use this article on your website only with my permission. In order to have my permission to use it you must give me credit for the artilce and include the following resourse box with the artilce: Joanne Musa is a tax lien investing strategest that has helped investors all over the world to build a profitable portfolio of tax lien certificates or tax deeds. Connect with her on Facebook at http://taxlienlady.com/facebook.htm to get more tips, tool, and resources on tax lien investing.
thank You,
Joanne
By Scott December 29, 2010 - 3:17 pm
You gave us some good info on sewer liens. A couple of questions on the same subject: How do we research or who do we call to find out about these outstanding sewer liens? and Does purchasing the lien and paying subsequent sewer charges entitle us to foreclose on the property?
By Joanne December 29, 2010 - 3:53 pm
Hi Scott,
Yes you can foreclose on a sewer lien if it is not redeemed at the end of the redemption period, just like you could on a tax lien. It is the same a tax lien for legal purposes. Tax collectors will sometimes indicate on the tax sale list what type of lien it is. If they don’t you can always call the tax collector and ask.
By Anna Lark December 29, 2010 - 12:54 pm
I bought a tax lien on delinquent property taxes, and I may have the possibility to pay a delinquent sewer lien. Since I have already exceeded the $1500 threshold overall, will the sewer tax accrue 18% no matter how small the sewer lien?
thx!
By Joanne December 29, 2010 - 1:05 pm
Hi Anna,
You will get 18% on any subsequent sewer amounts that you pay, since the owners of the property are already $1500 delinquent. Be sure to submit an affidavit with your subsequent tax payments. I always ask that the tax collector send me a stamped or signed copy of my affidavit so that I have proof that they’ve received it and it’s on file. Also check with the tax collector before you send the payment in as to what entity it should be made out to. Sometimes the payment goes to a separate department, like the municipal or county sewer authority, but the affidavit still has to go to the tax collector.
By Joanne December 29, 2010 - 2:50 pm
Anna, I just want to clarify one thing, because in your original question you said that you have exceeded the $1500 threshold overall, will the lien accrue at 18% no matter how how small the lien. I took that to mean that you had already paid $1500 or more on that same lien (or on that same property). If this is not the case, than you would only get 8% on your subsequent tax payments until the total amount the tax payer is delinquent on that property is $1500.
I just want to make sure that you are not including other liens that you purchased (on other properties in that district) when you say that you already “exceeeded the $1500 threshold overall.”
Hope this helps,
Joanne
By Komala Valli December 29, 2010 - 12:19 pm
I am not much familiar with the above sewer liens but it is good to know about that.