Tax liens scavenger acution in illinois

[Erica Hatfield]

I am looking for information on tax liens auction. I am new to REI. I am working on buying my first investment property and this scavenger sale seems like a great opportunity. Does anyone have experience with tax lien and petitioning for deed?

[Eric M.]

Yes I have done it in Cook County. It is not anything like the things you read. First, the auctions are massive and dominated by large, very experienced players who buy liens by the thousands. They know their business inside an out. You don't. I am certain in small counties, the vibe is much different than at Cook. Maybe the entire business or process is different. I can't speak to that.

The vast majority of liens in Cook are purchased at 0. No return. The large funds and companies are playing a numbers game. They are willing to invest their money at no return on thousands of liens because a certain percentage will not be redeemed and they will petition for the property. This might be 1% or 5% or 10%, I don't know. But those few "winners" are where they derive all their profit. 

So how does a small guy compete? You don't. You cannot buy thousands to play the same game. So you buy a few. But the 1% or 5% doesn't pan out when you buy a few, unless you get lucky. 

So if you want to buy "good" liens (the ones with solid underlying value which you want to receive if possible), you will have to bid low.

If you have this idea that you can bid 10 or 12 or 18%, you can do that too. Those are sold....even in Cook. I bought some 4's and 5's...all the way to some 14's and 15's and 16's.  Can you guess why those go for those prices? Yeah...because they are crap. All the pros know they are crap and that is why they don't bid on them and you can get them for a "great price". It is a direct proportion....the higher the number the bigger the pile of crap you bought.

This is where the tax lien gurus mislead. They give the impression that if property tax is being levied...if it is a taxable PIN, then it must be a piece of property with value. Well, that is not AT ALL the case. The tax rolls (at least in a county like Cook) are littered with bad PINs, old PINs, PINs that are slivers of land, all kinds of things. There are a whole slew of PINs that the pros laugh about because those same PINs get re-auctioned every 3 years to some newbie who thinks he is getting 18%. There are literally hundreds of these, probably thousands in Cook. Some are obvious and get no bids but often at the auction, you will hear a property end at 14 or 15 or something and there will be a tittering of chuckling in the crowd because they know some idiot newbie thinks he just invested his money at a guaranteed 14% but in reality, just tossed away his cash on one of these zombie PINs.

Now it isn't all bad, there are plenty (better to say some)  of decent PINs which don't get bid to Zero and they get redeemed, or I assume some don't redeem and are good. I had several 6-15% returns. Enough to pay for my losses. But in the end, it was not a great use of my time or money.  

So for some specifics, I bought 1 that I thought was a garden level unit in a condo building. It ended up being a basement storage cage that had its own PIN. When I discovered that, I thought, ok, I can rent that cage to a resident and make some cash back. Well first of all, the paperwork and process to petition for a property is not cheap and it is kind of complicated. It is a series of filings over months and sometimes years. If you don't follow the process to a T, you lose your right. So in this case, the paperwork was difficult because no one actually owned this cage and no one in the condo association would deal with me at all. I was never even allowed in the building. I ended up just writing it off.

Another was a parking space in a fancy downtown condo building, which can be quite valuable. So I was excited about that. However, it turned out that although this space was on the building plan and in the county records, the actual numbered space did not exist in real life. When it came time to paint the lines for the spaces, there was a pole in this spot and no car could be parked. So for 30 years, this spot has been auctioned off over and over. The condo board laughed about it and the assessor didn't care. So another write off.

Many many stories like these. I have actually never heard of an small individual investor around here actually ending up with a property of value. I did hear of a guy who got a little sliver of a lot for about 1500 all in and he was able to make a deal to sell to the neighbor for 5000. Which is great. It took years from start to finish and it is not something you can replicate. I am sure home runs do happen though. Just like some people do hit the lottery. And this is what the gurus sell...the dream of hitting the lottery. The vast, vast, vast majority do not.

The reality is that (like almost everything else) it is a grind it out business that you must really commit to learning inside and out and working at in order to be successful. Playing at it doesn't work. It is not an easy ...get rich deal. It is not the government guaranteed return that is hyped.