Tax Liens on Homestead Properties (Maryland)

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Tax Liens on Homestead Properties (Maryland)

DL Coker
New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes

Hi BP community
So I've been doing a lot of research about tax lien investing in MD. I participated in the Baltimore City tax lien sale not too long ago. After filtering out the properties that met my criteria and that I would bid on, I noticed that every single one had an asterisk next to it indicating that it had a homestead exemption - this gave me pause as a new investor to the market and I wasn't quite sure what this meant. I have since done research on homestead exemptions but I am still not fully sure how it could impact my tax lien investing (if at all).

What are the benefits / pitfalls of bidding on a property with a homestead exemption? My thinking was that, this simply indicates it's an owner occupied property - consequently, the likelihood of redemption is pretty high. However, if a property is under a homestead, does that ultimately make it more difficult to eventually foreclose (if things go that far)? Does it adversely affect the redemption period (i.e. my capital is tied up longer)? Or is it simply there to indicate that, if one were to acquire the property the subsequent taxes I would have to pay would be higher than what the current occupier pays? I'm not really clear on why or how relevant the homestead exemption is. Any guidance would be much appreciated.

Given that he is the resident expert on tax liens in Maryland, I'm sure I'll be directed to @Ned Carey. If he has any insight that would be great.
That said, if others have advice or similar experiences, please also feel free to share your thoughts!

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
6y

@DL Coker yes the "Homestead Exemption" simply means the property is owner occupied. The owner gets a small tax benefit for this. I believe it limits how much the taxes can be raised at a time. 

Generally it means that the property is more likely to redeem. Theoretically a homeowner is more likely to redeem than an absentee owner. However that is not necessarily so. A homeowner could have passed away and the heirs do nothing with the property for example.

Specifically regarding tax sales in Maryland, You can not start tax foreclosure until 9 months after the sale instead of 6 months. (this may only apply to Baltimore city properties but I think it is statewide). In Baltimore city the interest earned on the lien is 12% instead of 18%.

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  • Cameron Whitehead
    Flipper/Rehabber · San Marcos, TX · Member since 2016 · 128 posts · 38 votes
    6y

    In Texas, it is the redemption period. The owner can pay back his taxes owed and you get your money back and some I believe its a percentage but not completely sure about that. Hope this helps. I would ask the tax office you bought it from they should be able to tell you everything you need to know. 

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y

    @DL Coker yes the "Homestead Exemption" simply means the property is owner occupied. The owner gets a small tax benefit for this. I believe it limits how much the taxes can be raised at a time. 

    Generally it means that the property is more likely to redeem. Theoretically a homeowner is more likely to redeem than an absentee owner. However that is not necessarily so. A homeowner could have passed away and the heirs do nothing with the property for example.

    Specifically regarding tax sales in Maryland, You can not start tax foreclosure until 9 months after the sale instead of 6 months. (this may only apply to Baltimore city properties but I think it is statewide). In Baltimore city the interest earned on the lien is 12% instead of 18%.

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  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    @Cameron Whitehead and @Ned Carey Thanks for your responses. So @Ned as regards Maryland rules, once you have the tax lien certificate on a property you are then liable for future taxes at the full rate (i.e. without the discount from the Homestead exemption) - is that correct? Or does the homestead exemption stay in place until when (if) you actually go through with foreclosure?

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y

    @DL Coker The property belongs to the tax payer until you complete a foreclosure. Just because the property has a lien against it doesn't change anything. You pay the same amount the current owner would. Once you own it then things can change. 

    I think you are splitting hairs. It is not enough to change it from a good investment to a bad investment. If that small of an amount makes it a bad investment then you had a bad investment to start with. 

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  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    @Ned Carey Thanks for the reply. I wanted to make sure I was fully understanding the implications, so I appreciate your input as it makes it much clear for me now.

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