How To Profit From A Lien
Investors who are interested in locating tax lien investing opportunities should get in touch with their local tax revenue official responsible for the collection of property taxes. There are currently 2,500 jurisdictions cities, townships, or counties that sell public tax debt.
While not every state provides for the public sale of delinquent property taxes, if the state does allow the public auction of the unpaid property tax bill, investors should be able to determine when and where these taxes are published for public review. Property tax sales are required to be advertised for a specified period of time before the sale. Typically, the advertisements list the owner of the property, the legal description, and the amount of delinquent taxes to be sold.
Investors who purchase property tax liens are typically required to immediately pay back the full amount of the lien to the issuing municipality. In all but two states, the tax lien issuer collects the principal, interest, and any penalties pays the lien certificate holder, and then collects the lien certificate if its not on file. The property owner must repay the investor the entire amount of the lien plus interest, which varies from one state to anotherbut is typically between 10% and 12%. If the investor paid a premium for the lien, this may be added to the amount that is repaid in some instances.
How Does A Tax Lien Sale Work
Twenty-nine states, plus Washington, DC, the Virgin Islands, and Puerto Rico, allow tax lien sales. Every state uses a slightly different process to perform its tax lien sales.
Usually, after a property owner neglects to pay their taxes, there is a waiting period. Some states wait a few months while other states wait a few years before a tax collector intervenes. After this, the unpaid taxes are auctioned off at a tax lien sale. This can happen online or in a physical location. Sometimes it is the highest bidder that gets the lien against the property. Other auctions award the investor who accepts the lowest interest rate with the lien. Tax collectors use the money that they. earn at the auction to compensate for unpaid back taxes. Once the lien has been transferred to the investor, the homeowner owes them their unpaid property taxes, plus interest .
Where Do You Find All This Tantalizing Info
Your first source of information is the local newspapers. The county will publish the tax lien properties list twice before the sale. Once you see the list, you can do your homework on each property that interests you.
The taxing authorities put the properties up for sale, mostly by auction. Some hold online auctions, and others are live at the county courthouse. Online auctions make investing from anywhere possible, which means more competition for each property.
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Investors Bid On The Tax Lien Certificate
Depending on the auction, bids may be based on either the cash amount someone is willing to pay for the certificate or the interest rate theyre willing to accept. In the case of cash offers, a certificate goes to the highest bidder. In the case of interest rate, it goes to the lowest bidder.
Keep in mind that the lower the interest rate you bid on a tax lien certificate, the lower the profit you could potentially receive. Bidding wars on tax liens can drive the interest rate and therefore the profit down.
How To Buy Properties For Delinquent Taxes
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When looking to diversify their portfolios, many investors choose to invest in tax-delinquent properties. After considering the current real estate market and interest rates, many look toward tax liens for the source of their next investment. Albeit risky, buying tax liens and property with delinquent taxes is potentially profitable if done wisely.
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Tax Liens By The Numbers
First, let’s address growing property tax values. In King County, Washington, property values increased 9% from 2021 to 2022. As a result, a total of $6.79 billion of property taxes were assess in 2022, an increase of almost $200 million from the year prior. In some counties in Texas, over 95% of Texas residential properties increased at least 20% in value in 2022. In total, governments are assessing more and more property taxes. It’s estimated that an additional $328 billion of property taxes were assessed across the United States in 2021.
It’s difficult to assess nationwide property tax lien numbers for a few reasons. There is no single governing body over all property taxes county assessors value your property, and county treasurers collect it. In addition, though aggregated reports exist, they require extensive aggregation of data that may be outdated by the time all information is assembled.
With that said, the National Tax Lien Association estimates the United States generates roughly $21 billion of delinquent property taxes each year. It also estimates that between $4 billion and $6 billion are posted for sale to the private sector each year.
Information On Delinquent Accounts
The Cook County Clerks office has a variety of property tax responsibilities.
When delinquent or unpaid taxes are sold by the Cook County Treasurers office, the Clerks office handles the redemption process, which allows taxpayers to redeem, or pay, their taxes to remove the risk of losing their property. Records for delinquent taxes for prior years are the responsibility of the Clerks office.
The Clerks office also maintains the countys property tax maps and calculates tax rates based on the tax levies submitted by the countys taxing districts and the valuation of properties within those districts.
For more information visit the Cook County Clerks page onReal Estate and Tax Services.
You can search Delinquent Property Taxes online.
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How To Buy Property With Delinquent Taxes
When a homeowner defaults on property taxes, the county may place a tax lien on the property. This could end in a tax sale with an investor paying the taxes to get the home. While tax sales can be profitable, they take a lot of research. However, savvy investors eager to take bigger risks may invest in tax sale properties. A financial advisor who serves your area can help you build an investing strategy around real estate.
Delinquent Tax List Owner Profiles
Unlike any other list the delinquent tax list is highly concentrated with motivated sellers. You can send these people some insanely low offers and youll find that a good portion of them will actually sell their properties for 5% 25% of market value it may sound crazy but they do it because, in their present situation, it really is their best option.
Its also worth noting that these people usually have a very different perspective than most people do about their property.
- The property was a bad investment and theyre tired of paying for it. They want this property out of their life.
- They bought the property 20+ years ago and havent seen it since then. Theyve completely lost interest.
- They inherited the property and they never wanted it in the first place. They dont care how much they get, all they know is that they dont want it.
- Theyre tired of paying taxes on a property they never use and theyre too lazy to sell it the conventional way.
- The property has turned into a financial disaster and they want it out of their life.
- They have terrible memories associated with the property and they want to wash their hands of it.
Think about it why else would someone knowingly allow their property to go into foreclosure like this?? To most of us, it makes absolutely no sense UNLESS you look at it from one of these perspectives above.
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Local Real Estate Wholesalers
When thinking of how to look up properties with tax liens, one way that is often overlooked is to let someone else do it for you. Thats exactly what real estate wholesalers do.
Wholesalers look for properties that their investor clients want to buy. Their frequent customers are investors needing to find cheap homes to flip and landlords.
Wholesalers negotiate with motivated sellers, determine properties investment potential, and put suitable homes under a purchase contract in their name.
The contract can be assigned to someone else. An investor who likes the property will pay the wholesaler a fee to take over the contract.
The contract price has to be low enough for the investor to pay the wholesaler, make repairs or improvements, and still be able to sell for an acceptable profit.
In exchange for the assignment fee, you dont have to look for properties yourself and you get an investment-ready deal already pre-negotiated by the wholesaler.
These professionals know many places where to find houses to wholesale, including county records. Among potential investment properties they can suggest for you, there may be tax delinquent homes.
And when you establish a relationship with a good wholesaler, they will look for deals that suit your specific criteria.
Some investors dont work with wholesalers or brokers because they dont want to pay their fees.
Spending time looking for investment opportunities yourself can cost you more than the wholesalers contract assignment fee.
Dont Write It Mail It And Then Forget It
Follow up and patience are key. People in this situation are being inundated with letters, so yours might have gone into the garbage before they ever read it. If you dont hear back after a month, send another postcard. Remind them of your original note and that you are still interested in their property.
If you dont get a call, mail them again. You cant afford to be shy. And you must be persistent but in a friendly and kind way or you will never get a response. Write that one gracious letter in a sea of angry ones. You always attract more bees with honey than with vinegar.
Now lets say that Jack never responds. After a certain amount of time decided by the county, his property goes up for a tax lien sale.
Now is your chance to start investing in tax liens. Here is how
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The Servicer Might Pay Any Delinquent Taxes If You Dont
If your loan isnt escrowed and you dont pay the property taxes, the loan servicer might pay any delinquent taxes and then bill you for them. Heres why: Property tax liens almost always havepriority over other liens, includingmortgage liens and deed of trust liens.
Because a property tax lien has priority, a tax sale wipes out any mortgages. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this kind of sale from happening. The servicer will then demand reimbursement from you, the borrower.
What Is The Difference Between A Tax Lien And A Tax Deed
Buying tax liens differs from buying a tax deed. Buying a tax lien means you take possession of the homeowners debt . The homeowners still own the property and can live in it, but they owe you the back taxes plus interest and penalties.
When you own tax liens, you dont own the home, just the right to collect the debt. If enough time passes and the homeowner doesnt pay the taxes, though, you may foreclose on the property and take possession.
A tax deed is a sale by the county. The county foreclosed on the property and wants to sell it to the highest bidder. The county takes priority of the funds, repaying the past due taxes and penalties. The remaining funds go to the homeowners lender to cover any outstanding mortgage balances.
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How Can I Invest In Tax Liens
Investors can purchase property tax liens the same way actual properties can be bought and sold at auctions. The auctions are held in a physical setting or online, and investors can either bid down on the interest rate on the lien or bid up a premium they will pay for it. The investor who accepts the lowest interest rate or pays the highest premium is awarded the lien. Buyers often get into bidding wars over a given property, which drives down the rate of return that is reaped by the winning buyer.
Buyers of properties with tax liens need to be aware of the cost of repairs, along with any other hidden costs that they may need to pay if they assume ownership of the property. Those who then own these properties may have to deal with unpleasant tasks, such as evicting the current occupants, which may require expensive assistance from a property manager or an attorney.
Anyone interested in purchasing a tax lien should start by deciding on the type of property they’d like to hold a lien onresidential, commercial, undeveloped land, or property with improvements. They can then contact their city or county treasurer’s office to find out when, where, and how the next auction will be held. The treasurers office can tell the investor where to get a list of property liens that are scheduled to be auctioned, as well as the rules for how the sale will be conducted. These rules will outline any preregistration requirements, accepted methods of payment, and other pertinent details.
County Tax Delinquent Property Lists
Learning how to find out who owes back property taxes for yourself will lead you to the office that collects taxes in your area.
Your county or city will have a Tax Assessor or Tax Collector. Their office compiles and maintains a complete database of all parcels in their jurisdiction.
The information in these records includes ownership information, value and tax payment history, and whether or not taxes on the property are current.
Contact the appropriate office in your market and ask for a list of properties with unpaid taxes. It may be called Tax Forfeitures, Delinquent Tax Roll, or a Tax Sale List.
Municipalities are eager for these properties to find their way into the hands of people who will pay their taxes consistently.
Its in their best interests to help investors who will bring tax delinquent properties up to market standards and sell them to taxpayers.
Some offices have a mailing list of people who regularly receive updated tax delinquency lists. Make sure that you get on that list.
Most counties and cities have interactive sites that enable you to search the sub-markets that you have identified as potential investment markets.
Without much time or trouble, an investor can search each property and quickly see if they are current on their property taxes.
The next method is one of the most classic ways for those thinking of how to find leads for wholesaling real estate or home flipping.
You may save time by going straight to the mortgage company with your offer.
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How To Find Tax Delinquent Properties In Your Area
Imagine scoring a well-maintained $300,000 home for just a few thousand dollars. Does that sound too good to be true? Its not. Read on to learn how to find tax delinquent properties in your area to accomplish just that.
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How Do I Calculate My Property Taxes In Nyc
The property tax bill for each Manhattan condo or house can be found on the City of New York Department of Finances website.
The Pros And Cons Of Buying A Condo In Nyc
Residential property in New York City is typically classified as Class 1 because it includes family homes, small stores, and offices with one or two apartments attached. The majority of condominiums are no more than three stories tall. Individual condominium owners are not required to pay corporation taxes. Condo prices are higher than co-ops in part because of their higher costs.
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If You Don’t Reimburse The Servicer You Might Lose Your Home To A Regular Foreclosure
The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don’t reimburse the servicer for the tax amount that it paid, you’ll be indefaultunder the mortgage’s terms.
The servicer can thenforeclose on the homein the same manner as if you had fallen behind in monthly payments.
How To Use Your Tax Delinquent Properties List
Obtaining a tax delinquent property list has proven incredibly beneficial to lead-seeking investors who prefer to work with motivated sellers. Few homeowners prove to be more motivated than those who are behind on their taxes their situation typically justifies a timely and efficient sale. It is worth noting, however, that not all municipalities share the same policies regarding delinquent taxes. There are a great deal of local governments that dont place an emphasis on tax-delinquent foreclosures, or even how often they are pursued. Some tax delinquent homeowners are more motivated than others .
On the other hand, if tax delinquencies are acted upon in a swift and decisive manner, real estate investors may be able to help motivated sellers get rid of their properties in a timely fashion. In the event tax delinquencies serve as a significant motivating factor, there are a number of things investors can do with their property lists.
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What Happens If I Am Successful In A Bid For A Property
You are required to post a nonrefundable deposit of 5% of the bid or $200, whichever is greater, prior to bidding for the parcel.
Payment in full, including documentary stamps and recording fees, must be made by 10AM the next business day. Payments can be made through the online sales site or in person with cash or by cashier’s check payable to Clerk of the Circuit Court. Upon receipt, a tax deed will be issued and recorded.
If full payment is not made, the Clerk shall cancel all bids, re-advertise the sale, and pay all costs of the sale from the deposit. Any remaining funds will be applied toward the opening bid. The clerk may refuse to recognize the bid of any person who has previously bid and refused, for any reason, to honor their bid.
