This blog post is?in response to some very good questions from Mike about utility liens. Mike had submitted these questions in comments on the post “Are Sewer Liens Worth Buying?”
Here are his questions and the answers:
Question #1: 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 you’re really banking on being able to pay the subsequent delinquent property taxes.
Answer: Yes, when you purchase a water, sewer, or other small utility lien, you are counting on being able to pay the subsequent utility amounts in order to make good returns. However I have to point out that though you might not make a lot of money on these small liens, you will not lose money on them. Where I invest the recording fee is $40, but it is paid back to the investor, along with a $12.00 search fee, when the lien redeems. And although you are making small amounts of money, where else are you going to be able to invest those small amounts for 8-18% returns?
Question #2: 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 what amount or do you have to dig through municipal records to find this information?
Answer: This depends on the county and the state that you are investing in. In some states, taxes are payable quarterly, in some twice a year, and in others once a year. Sometimes a notice is issued, but most of the time it is up to the investor to contact the tax collector, in writing and request the amount of sub taxes that are due.
Question #3: Does it matter when you pay the subsequent taxes?
For example, quarterly installments versus an annual payment right before the next tax sale.
Answer: Different states have different times when you can request this information, and some states have deadlines of when you can pay them. I want to point out that in Florida you are not allowed to pay the subsequent taxes and must bid on the lien each year. I also want to point out that in some Arizona counties if you do not pay the subsequent taxes (or utility amounts) your lien will sold in the next tax sale along with the current lien. These 2 states handle subsequent payments a little differently than the others.
I hope this clears up some questions about utility liens. If you have any other questions or comments please leave them below.
By Tory August 25, 2011 - 3:57 pm
Hi Joanne,
I’m registered for multiple practice auction sites (Colorado, Arizona etc.) I’m trying to figure out exactly how one would determine which liens in the online auctions are actually Utility Liens vs. Liens against homes. The Legal Descriptions of the Lien normally just has and address, square footage or something to that nature. Never came across anything that specified “Utility Lien”. Your help is appreciated. Thanks in advance.
By Joanne August 25, 2011 - 10:03 pm
Hi Tory,
Not all state sell utility liens with tax liens. I think that Arizona and Florida do, but I’m not sure about Colorado. You won’t find that information in the practice auctions. You’ll just have to wait until you get the real auction list. It is usually not indicated in the list you get from the county, but is sometimes indicated in the enhanced lists that you purchase depending on whether the tax collector provides it or not. If you cannot tell which liens are utility liens or if the state you investing in doesn’t sell utility liens in the tax sale, then don’t worry about it. Just go after the smaller liens as long as they are on residential properties with houses on them and you do your diligence on those properties before you bid.
By heidi February 22, 2011 - 8:03 am
Regarding utility liens….your Q&A answered some of my question, that you, the investor, get the $12.00 search fee in NJ paid to you even though we have not paid for it..correct?
Which makes me wonder if you would get the $40 recording fee back also even if you did not have it recorded? Or is there no way you would get paid when it redeems if you do not record it? I am just trying to fiqure out if the city does not have an affidavit for the $12.00 search fee..would they just add the $4-0 recordeding fee without an affidavit?
By Joanne February 23, 2011 - 8:27 am
Hi Heidi,
Every tax collector plays by their own rules on this, most will automatically give you the $12.00 search fee, but some might not give it to you unless they have an affidavit for it. All tax collectors require affidavits for the recording fee and subsequent tax payments.
What I do is pay my first subsequent tax payment as soon as I can and then send in an affidavit for both the recording fee and the subsequent tax payments, you can have different payments on the same affidavit as long they are for the same lien.