I just love it when I get checks in the mail from my tax lien redemptions. But what do you do when your liens don’t redeem and the redemption period is over? This is somewhat state specific because some states don’t give you much time to foreclose once the redemption period is over. You may only have 6 months after the redemption period before the lien expires, in those states you will have to start the foreclosure or deed application process right away and hope for the best.
But in states where tax liens have longer expiration periods there are things that you can do to maximize your return on your investment and get paid when you want to. Since I invest in a state that has a 2 year redemption period and a 20 year expiration period, I can let my liens go way past the redemption period and not worry about losing my investment as long as I pay the subsequent taxes. In fact the more I let the lien ride and pay my subsequent taxes, the more money I’ll make. But there comes a time when I have more money into the lien than I want to have. I don’t want the redemption amount to approach the value of the property; I don’t want it to come close to half the value of the property. I don’t want it to be more than 25% of what the property is worth.
So how do you know when it’s time to start foreclosure on a property and force redemption, and how do you know if the property will redeem or if you will actually get to foreclose on it? If there is a mortgage or other substantial interest in the property, other than the homeowner, the lien is likely to redeem after the intent to foreclose notifications are sent. The property owner was not able to pay the taxes, and likely will not be able to redeem the lien. But a mortgage holder, once they have notice of a probably tax lien foreclosure will most likely redeem the lien to protect their interest in the property.
In the past 2 months I’ve had 3 liens redeem. I’ve held 2 of these liens for more than 7 years, one for 4 years and one for just over 2 years. All 3 of these liens redeemed because I had a lawyer send out intent to foreclose letters to the property owners and all lien holders. And in each case it was the mortgage company, not the property owner, who redeemed the lien.
Here are some other reasons why you may want to start the foreclosure process to force redemption on a tax lien, other than the redemption amount becoming more than 25% of the value of the property:
- You did not pay the subsequent taxes for whatever reason and someone else bought a subsequent tax lien on the property and now their redemption period is almost over.
- You are concerned that the owner of the property may be entering bankruptcy.
- You need cash
But what if the expiration period isn’t over yet and you need cash and want to get the cash out of your investment? Can you do that even though the redemption period isn’t over yet? You can’t send an intent to foreclose letter if the redemption period isn’t over yet, but you can send a notice of the lien to any lien holders on the property. If there is a mortgage on the property and they are notified of your lien, there is a good chance that they will redeem it. Another way to get your money out of your investment before the redemption period is over is to sell or “assign” your lien to another investor.
Remember that the laws are different in every state, so before you try any of these methods make sure that you check the state statutes regarding the redemption of tax lien certificates, or check with a tax lien attorney in your state. This article is for educational purposes only and should not be taken as legal advice.
By Thomas October 25, 2011 - 10:28 am
Hi Joanne,
I am curious about selling or “assigning” a lien to another investor, if need be. Is there a good secondary market for this and what is the process behind it? Thanks for your input.
By Joanne October 31, 2011 - 7:58 am
Hi Thomas,
that depend on how many liens you have to sell. There is actually a brokerage service for tax liens. But they deal with large portfolios of liens for sale. They buy and sell secondary liens among the institutional buyers. For individual investors, if you know who the players are, not the large institutions, but the smaller companies, they may be interested in purchasing secondary liens, especially if they are just getting started in the business and need to place some capital.
By Christian October 14, 2011 - 4:12 pm
Joanne…
My question has to do with subsequent year tax purchases. I recognize that rules vary by state and that you cannot give specific legal advice. I am simply curious as to your experience on the subject. I am a lein certificate investor via assignment and understand the advantage to picking up the subsequent year taxes but am in a state where the codes are essentially silent on the subject other than to say that a certificate holder or assignee “may” purchase them. Period. The code gives absolutely no other administrative guidance as to the “when” or “how” and interpretation and implementation is apparently left to the discretion of the individual county treasurer so opinions and procedures vary. Clearly it is to an investor’s advantage to add the subsequent year amounts to the assignment as early as possible. In this state the new taxes are due in two portions. The first half is due Nov 30 and the second is due the following May 31. I feel that it would seem to be logical to be able to purchase each half individually upon delinquency of that half in the same manner that the property owner is able to pay each half individually as it becomes due. In the past I have been required to pay both halves, i.e the whole year, at one time. The problem is that I would often be doing this in January or February after the first half has become delinquent but before the second half is even due yet. Irregular as this might seem I really had no problem with the approach as long as the payment for the “not even due yet” half accrued interest from the earlier payment date rather than the future due date. The protest that would be available to the property owner under this method would be the legality of assessment of interest on a debt prior to its becoming due. Pursuant to my rattling of the bushes requesting clarification and specific quidance on the subject, at last year’s meeting of all the county treasurers, they allegedly discussed this issue among themselves. I am not privy to the details of the various opinions expressed but can report that now the procedure has been modified to require that the purchase be for the entire year and to only allow the purchase to be made after BOTH halves become delinquent, rather than purchased in two portions AS they become delinquent. Clearly for the investor the latter option would be preferable. Any thoughts or experience along this line to relate to us? Thanks. Christian
By Joanne October 14, 2011 - 5:23 pm
Hi Christian,
Yes it would be better for the investor if the delinquent taxes could be paid as they become delinquent but you have to remember that they are not necessarily thinking of the investor. The county treasurers will do what is easiest for them and best for the property owner. Clearly being charged interest on payments that are not due yet is not fair to the property owner. Just be thankful that you get to pay the subsequent taxes, and at the same time that you’re not forced to. In one state you do not get to pay the subsequent taxes and the delinquent taxes are sold each year in the tax sale. And in some counties in yet another state, not only do you get to pay them, but you are forced to pay them if you want to keep your lien. In these counties if you don’t pay the subsequent taxes your lien is sold in the next tax sale with the delinquent taxes!