This week I received 2 very good questions from subscribers that I wanted to answer for you on this blog so that everyone can benefit from them. And each of these questions is a multi-part question that requires more than just a simple answer. You can read the questions and the answers below.
Question #1:
When he found out that he just missed the tax sales this year in Arizona Eric asked ;
“Can’t I invest in tax liens year around online? Not just in Arizona but in other states? What about the liens that are left after the tax lien sales end, can’t I purchase those?”
Answer:
There are actually 2 parts to this question so I’ll answer it in 2 parts. First, yes there are online tax sales in different states at different times of the year, but there are certain times of the year when there are no tax lien sales online. Tax deed sales are another story since some Florida counties have online deed sales all year long, as often as once a week. But this is not true for liens. Arizona has tax sales in February, there are a couple of Nebraska counties that have their tax sales in March. Florida couties only have their tax lien sales once a year in May, and some Colorado Counties have online tax sales in the fall. These are the only states that have a few counties, not just one or two, that have a substantial amount of properties in their online tax sales. If you would like to find out more about which counties have online tax sales and when they are offered, the Buying Tax Liens Online course comes with a Guide to Online Tax Lien Sales which lists the websites for all of the counties that have online tax sales. The course is updated annually to reflect the new counties each year that have tax sales online. You can get more information about Buying Tax Liens Online at www.BuyingTaxLiensOnline.com.
Secondly, regarding purchasing the left-over liens after the tax sale is over, this is not a strategy that I recommend for new investors. The reason that I don’t recommend it, is that tax sales are so competitive today that if properties do not sell in the tax sale there is usually a pretty good reason why no one bid on them. Purchasing tax liens from this list requires careful due diligence. I just don’t think it’s a good idea unless you’re an experienced tax lien investor. And even then it’s going to require some extra time on your part.
Question #2:
Noah asked, “After you purchase a tax lien there is an obligation as a lien holder to continue to pay taxes on the property moving forward from the purchase of the lien, correct? Moving forward do you acquire a new lien for each tax payment made? I am not looking to acquire properties through tax liens but to obtain a return on cash.? When and if the lien is satisfied do I get back the initial price of the lien plus % and any additional tax monies paid?”
Answer:
In most states you can pay the subsequent taxes. In Florida you don’t get to pay them unless the lien is not redeemed and some counties in Arizona force you to pay them, but in most counties you do not have to pay the subsequent taxes. If you do pay them, you do have to submit an affidavit to the tax collector stating that you paid the subsequent taxes, and they are added to your lien. You are not issued a new tax lien certificate for the sub payments.
As long as you give the tax collector an affidavit for the amount that you paid and get proof of that (I usually have the tax collector send me a stamped or signed copy of my affidavit) then you will get back when the lien redeems your initial investment plus interest and any additional subsequent tax payments that you paid with interest as well.
If you have questions for Joanne you can submit them below or click on the Ask the Tax Lien Lady tab in the menu bar.
By Jason June 21, 2012 - 10:28 am
Hi Joanne,
Do you recommend buying tax liens on vacant land? I notice the interest rate is much higher since less people bid on them. I also think it is less stressful when the lien does not get redeem and then file for a tax deed in 7 years. If I win the deed at auction, I do not have to kick the previous owner out since no one lives there anyway.
Second question is how do you do a title search on the property? I have gone to the county appraisor site, typed the parcel number and I saw all the sales & deed history records. Is this where the title search is?
Third, if the intent is to own the property. Once I purchased a tax lien, can I purchase subsequent taxes to avoid getting bid out from the auction next year? Do I collect 18% interest on all subsequent taxes that I purchase as well?
Thanks for all your help
By Joanne June 22, 2012 - 5:21 pm
Hi Jason,
I only recommend buying tax liens on vacant land if you can look at the property or have someone look at it for you. I buy tax liens on vacant land but only if I look at it first. And also you want to check the zoning on the property and make sure that it’s buildable and check the state’s environmental web site to make sure that it’s not near a known contaminated site.
In answer to your second question, not that is not how you do a title search on a property. Looking up the property ID will only show you information about the deed. You want to know about any liens that are on the property and for that you have to search on the owner’s name. I do not do title searches on tax lien properties until it’s time to foreclose.
And in answer to your third question, you do not actually get to foreclose on tax lien properties if you do your due diligence and bid on good properties. Once you start foreclosure someone (usually the bank) will pay you off, but it is always a good idea to pay the subsequent taxes except in Florida where you do not get to pay them until you apply for the property to go into a tax deed sale. The amount of interest you get on your sub payments depends on the state.
By katerina August 30, 2011 - 1:00 am
Hi,
I am planning to invest in tax lien certificates. I am taking a tax lien course. However I dont live in the states and want to ask you if you would recommended invest from outside the country and what would be the best way to do it?
Thank you for your help
Kat
By Joanne August 31, 2011 - 8:08 am
Hi Kat,
What course are you currently taking? Not all states offer online tax sales, and even for the states that do, not all of the counties have their tax sales online. If you are going to invest from another country – and that is something that you can do, I recommend that you get the Buying Tax Liens Online course at http://www.BuyingTaxLiensOnline.com for $97.
By jMusa April 4, 2011 - 5:53 pm
Hi Nolan,
I am Joanne’s assistant and use firefox.
When I view this blog I don’t have any
sentence run-ons. Do you have the latest
firefox or have you refreshed your screen?
Other than those suggestions I don’t know
what to tell you.
Debby
By Nolan Gillstrap April 3, 2011 - 5:07 pm
Hey there just wanted to give you a quick heads up. The text in your content seem to be running off the screen in Firefox. I’m not sure if this is a formatting issue or something to do with browser compatibility but I thought I’d post to let you know. The style and design look great though! Hope you get the problem resolved soon. Many thanks
By Joanne April 4, 2011 - 1:30 pm
Thanks Nolan,
I don’t use firefox, but my assistant does, so I’ll have her look into it.
By Heidi March 12, 2011 - 8:55 pm
I recently went to a utility lien sale and found most of the properties that were currently deliquent in paying their RE taxes, already had a prior lien…my question is why would lien holders not pay subsequent taxes due? It isn’t the interest earned by investors based on the number of days since they paid the subsequnt taxes?
another question in general about tax lien investing….as an individual buying tax liens, should we have any type of insurance? and would it be better to develop an LLC for this tax lien investing activity?
By Joanne March 14, 2011 - 7:49 am
Hi Heidi,
Where did you attend a utility lien sale, because I have not heard of one of those before? Yes the interest earned by investors (in most states) is calculated daily (in NJ) or monthly (in most other lien states). But there are a couple of reasons that investors would not pay the subsequent taxes. One reason is that they would rather have their money invested in new liens. Especially in NJ were they may only get 8% on the sub payments for utility liens if the original amount was less than $1500. That brings up the second reason they would not pay their subsequent taxes on a utility lien (in New Jersey). Why pay the subsequent taxes and get only 8%, when they wait until the tax sale and bid 18%? Although now many tax collectors won’t let you announce that you are the prior lien holder when bidding at the sale, so it’s best to just pay the subsequent taxes then be bid down at the tax sale. For a better understanding of this process in New Jersey you can read the post “Are Sewer Liens Worth Buying?”
As for your question about insurance, I’m not sure what type of insurance you are referring to. I am not a legal professional, so everyone who reads this should check with their attorney, as laws in every state are different. But I have found no reason to have insurance for purchasing liens in your own name, or in the name of an entity for that matter. You should have whatever insurance you would normally have to protect your self, or your LLC, but I do not see the need for an insurance just for investing in tax liens. Foreclosing on tax liens and buying tax deeds or redeemable deeds are another matter, however, as now you or your entity are the owners of record of real property. As to what type of insurance is needed, I think that depends on your personal situation and the state that you live in or have formed your entity in. That is something that you need to discuss with your attorney.
By Jim March 11, 2011 - 12:37 pm
Hi Joanne,
i registered for the webinar with Comian for next week but missed the webinar with the Tax Lien agent PIP West. Is there anyway you can email me a copy of the replay?
Keep up the great work!!!
-Jim
By Jim March 10, 2011 - 6:43 pm
Re: Douglas County, Nebraska
I placed over 350 bids at this recent sale. Did not win one.
The Nebraska state statutes are to “bid down the ownership.” Of course the counties and investors do not like this (because of title issues etc. etc.) and my understanding is that they have always gone to a rotational or random method at the auctions.
Before participating in this auction, the county had stated on their website that they have never sold a lien at less than 100% ownership. When researching liens, I had also noticed that when an owner of the property had redeemed a previous lien, it showed the bid amount at 100%.
Based on that information, I assumed everyone would bid 100% ownership (as in all previous auctions that were not on-line) and the auction software would therefore select the winners at random. Boy was I wrong!
In analyzing the results from the auction, all of the bidders that bid 1% ownership were institutional bidders. (on average 500 bids on a property, 450 bidders at 100% ownership and the rest less than 100% and about 20 at 1%)
So it now makes sense that if you are investing millions of dollars and getting 14% that if the institutional investors had a few of those liens not redeem, it would would not be a big deal to them. They would still be getting a great return.
But here is an interesting question. How did these institutional investors know all of a sudden to bid less than 100% ownership? Something smells rotten in Denmark.
–Jim
By Joanne March 11, 2011 - 10:16 am
Greg and Jim,
It seems that when any county goes online there is a lot more bidding competition, sometimes making it not worth it to bid in those counties. What happened in Douglas county is an example. In the past all liens were awarded at 100% ownership, but this year, the first time they went online, some bids were awarded as low as 1%. And these were institutional buyers, not new investors that didn’t know any better. They bid 1% even in spite of a warning on the Douglas County tax sale web site not to bid under 100%.
The bottom line is that if you want double digit returns in NE or AZ, stay out of the online tax sales that make it too easy for all bidders to bid. If that leaves you out of tax lien investing because you don’t live in a tax lien investing state and you don’t want to spend the money to travel to lien state, then you do have a couple of alternatives. You can invest with a tax lien agent or a tax lien investing fund. You can even do it through your self directed IRA. These tax lien agents and fund managers are experienced investors that get great rates for their clients, better than you can get on your own. You may want to read the post Done For You Tax Lien Investing? to find out more.
We just had a really informative webinar with Tax Lien Agent PIP West, as you know Greg, because you were there asking a lot of great questions. That replay will be sent to all who registered for the call tonight. We have another webinar scheduled with Comian Investment Fund for next Wednesday. Hope that you can both make it. Comian does have a lower minimum investment than PIP West.
By Greg March 8, 2011 - 7:44 pm
Jeff:
>Sure seems to make this lottery less appealing than
>Arizona?s scheme. Agree?
Agree, but:
* many Nebraska counties do use a random selection process instead of bidding down ownership – so the lottery is better to play there
* for example Douglas county was like this last year
* but apparently that is unlikely to be the case with online tax lien sales now that Douglas has gone online.
* with 0% ownership your expected return comes down to what % of liens you expect to redeem
* with random selection bidding (either the 100% ownership or 0% ownership variations which Douglas bids mostly came to) the number of bidders you run becomes an edge
* for example, most properties that I bid on in the sale had ~400 bidders. I’m sure many of those were multiple bidders for the same firm.
=>
Even with 0% ownership bids I can see the next Douglas sale as a winner *if* you can control many bidders *and* restrict your bidding to those properties that you think are most likely to redeem. This is speculation since if you are significantly wrong about the expected redemption rates then you are in for a world of pain.
As for whether it is better or worse then AZ – this depends on the AZ competition. This year AZ looked like a much better bet. But next year – who knows?
By Jeff March 8, 2011 - 5:01 pm
Thanks, Greg,
I did a bit of analysis on the results of Douglas County. Over 51% of the winning bids were at 0 or 1% ownership. The average tax lien value for those was about $2000. Meanwhile, over 26% of the properties were awarded either 99% or 100% ownership. However, this is overstated because many of the winners bid much lower but were proxied up. And, the average tax lien value for those properties was only about $600. So it appears the only way to get 99% or 100% ownership is to bid on the undesirable properties that no one else is bidding on, or bid on those properties with such a low face value that they aren’t attracting the attention of other bidders. Otherwise, if you are ok with an 8.35% expected return, bid 1% on attractive properties, and hope you are randomly selected (because you won’t be the only one bidding 1%). Sure seems to make this lottery less appealing than Arizona’s scheme. Agree?
By Greg March 7, 2011 - 6:31 pm
Joanne:
Re the Douglas, NE sale:
>I do not recommend bidding less 100% ownership at any of
>the Nebraska tax sales, although some counties do sell
>liens at less than 100%, I advise against it.
Someone should tell that to the other bidders.
All 119 properties I bid on (admittedly residential properties
with assessed value $80k+) had winning bids at 0% or 1% ownership.
That’s a far cry from random selection.
(and it makes sense too – if bidders anticipate that they have
a 95% chance of redemption then their expected return is
.95*1.14 + .5*0 = 1.083 => 8.3% .)
In my view it is critical to know the costs of getting
money out of properties in the event of there not being
a redemption so that the non-redemption case has an
anticipated return of or on investment.
By Brian Templeton March 4, 2011 - 4:49 pm
Hi Joanne,
I have a question, the answer that you give could well be of interest
to people in Canada and countries further away from the United States.
I would like to open a business bank account for the tax business in
the U.S., and preferably at a large Texas bank, because in time, I shall be likely doing most of my investment in Texas due to their
monthly tax deed sales. Is there a way that I could open an account
there with a bank without me having to travel down to Texas for that
alone? I feel that I should associate with a bank which also invests
heavily in their state tax deeds, because I would like to get, if possible an ever increasing line of credit as time passes. I do have
a U.S. corporation in Wyoming, and a I.R.S. E.I.N. no..
If I can clear my way though this barrier, it is my intention to sign
up with Mr. Don Fullerton of PIP Investments, who you recommended to
me, and who I have already contacted to start the tax investing.
Sincerely, Brian Templeton
By Joanne March 7, 2011 - 12:17 pm
Hi Brian,
You can try contacting Bank of America, they are in Texas, but I don’t know if they invest in tax deeds. However you should know that in order to invest in Texas tax deeds you will have to travel to Texas or find someone who can bid at the tax sale for you, since Texas does not have online tax sales. They are pretty strict about who is permitted to bid at their tax sales. If you have someone bid for your company, they will have to show proof that they are an agent for your company. Also you will have to have a certificate signed by the County Assessor stating that you do not owe any taxes in that county if you are successful in winning any properties.
Here’s one thing to consider if you are planning to go with Don Fullman of PIP West. You may not need to have a U.S. bank account to invest if you are investing trough PIP West. That is because they will purchase the deed in their name and then assign it to you. I am hosting a webinar with Don on Wednesday and we can ask him about this just to be sure. You can register for the webinar, and ask a question for Don at http://www.taxlienlady.com/WebinarTraining. This link is only good for this webinar until Wednesday March 9.
By Greg March 4, 2011 - 1:55 pm
I have a question for Nebraska:
Suppose you win a tax lien with less then 100% ownership (as can happen in the eg. Douglas county sale) and the owner does not redeem and you foreclose => you have partial ownership.
How does this process work?
Can you force a sale / petition for a partition?
What is the typical cost and timeframe for this?
Who are recommended attorneys to help with this?
Answers to these questions are key to understanding when it makes sens to bid less then 100% ownership.
By Joanne March 4, 2011 - 3:05 pm
Hi Greg,
This came right off the Douglas County bidding site:
“In all previous Douglas County tax certificate auctions, liens have been sold at one hundred percent ownership. Ownership of less than one hundred percent raises questions concerning title insurance and foreclosure rights. Be sure you know your rights before placing bids at less than one hundred percent ownership.”
I do not recommend bidding less 100% ownership at any of the Nebraska tax sales, although some counties do sell liens at less than 100%, I advise against it. If they only get bids at 100%, they will use a random selection process to determine who wins the bid.