Here’s some tax lien investing Q & A. Although the questions were about tax lien investing in New Jersey, I’ve answered them for other tax lien states as well…
I’ve watched your videos and read your blog and have grown a great interest in tax lien investing. I as well would be investing in NJ and just had a couple of questions.
Question #1: Say I purchased a Lien for 75 dollars. Now what happens if the owner continues to not pay his taxes? Am I paying them?
Answer: You don’t have to pay them, but it is in your best interest to pay the subsequent taxes because if you don’t pay them the lien will be offered in next years tax sale and you will have to take your chances and bid at the lien at the sale. If you do pay the subsequent taxes in NJ you will get 8% on your subs until the delinquent amount is $1500 and then you will receive 18% on your subsequent tax payments.
For other states how much interest you make on your sub payments depends on the state, some give you the default rate in other states (Arizona for example) you only get the rate that you bid at the sale.
In Florida, you do not have the opportunity to pay the subsequent taxes until the redemption period is over. And in Arizona, there are some counties that require the tax lien investor to pay the subsequent taxes. But in all the other tax lien investing states it is not required of the tax lien investor to pay the subsequent taxes, but it is in your best interest to do so.
For redeemable deeds, as well as deeds, you must pay the subsequent taxes.
Question #2: What If the auction isn’t for a few months but I want to purchase the lien now?
Answer: This is NOT allowed in all lien states you can only purchase a tax lien at the auction. Some do allow you to buy over counter liens after the auction, but not before.
Question #3: What if the owner pays the delinquent taxes 2 months after I purchase the Lien, how much would I be profiting?
Answer: In most tax lien investing states the interest rate is per annum. To make the calculation for New Jersey simple, let’s say the lien amount was $100 – and you bid down the lien to 12% at the tax sale. If the lien redeemed 2 months after the tax sale, you would get $2 interest. If the lien was $200 you would also get an additional 2% penalty so you would get $8 instead of just $4. That’s because the penalty is not applied to liens under $200. In New Jersey the interest is added daily, while in most other tax lien states it is calculated monthly but it still comes out around the same.
There are some states where you get a penalty and not an interest rate on the certificate amount. This would include all of the redeemable deed states, plus Indiana and Illinois.
In Florida if the interest accrued is less than 5% of the certificate amount, you would get the minimum 5% penalty instead of the interest rate.
Question #4: And say after the redemption period if the owner still has delinquent taxes, am I paying that full balance for the property?
Answer: That depends – you do need to pay all of the subsequent taxes if you foreclose on the property, but in most cases, once you give notice of your intention to foreclose the property will redeem. If the property doesn’t redeem and you go ahead with the foreclosure you will have to pay the taxes up to date.
Follow Us!