Here are the answers to some recent questions that I got about tax lien investing in New Jersey:

Question: If an investor buys a $8,000 lien and the interest gets bid down to 0%  and the lien holder pays the subsequent taxes, which is another 8k and then in year three, if lucky, he pays another 8k, is the interest in year three is based on the 8k for the year or on 16 k of collective taxed for year two and three? Also, does the investor ever get paid interest on the original amount of tax delinquency paid for the certificate if the interest is bid down to 0%?

Answer: If you bid 0% on a $8K lien, you do not get any interest on the certificate amount , but you do get the penalty as long as the lien is redeemed after the 10 day grace period – penalty on an 8K lien would be 4%. You would also get 18% per annum interest on all subs paid.

If you have been to any tax sale in NJ then you know that in order to get a substantial tax lien like this, you would have to bid down to zero on the certificate amount and then bid high premium. You would not get any interest on the premium, but you would receive the premium back if the lien is redeemed within 5 years. Because this money would be tied up for the duration of the lien, it would effectively lower the interest that you receive on your subsequent taxes.

Question:  The end of the year penalty will kick in on what amount (only if the amount of delinquency is larger then 10k or if accumulated payment including the first and the second year of taxes exceed 10k)?

Answer:  The end of year penalty is only applied (in the municipalities that have it) on January 1^st of the next year after you’ve paid over $10,000 in subsequent tax payments for the year. It is not paid on the certificate amount, only on subsequent taxes and only if you pay $10,000 in one year. If the lien redeems on Dec 31^st – you do not get it, only if the lien redeems in the next calendar year from the year you paid the subsequent taxes.

Question: Can the delinquent owner apply for a “surplus”, if the certificate gets bid up on a premium, and pay the required taxes from this monies?

Answer:  The property owner does not have to apply for the overage. It is held by the municipality and returned to the investor – only if the lien is redeemed within 5 years. The property owner only has to come up with the certificate amount and any subsequent tax amounts plus penalties and interest and also the recording fees paid by the lien holder and a $12 search fee per certificate. The premium is paid to the investor from the municipality, usually in a separate check.