Tax Lien Foreclosure and Supreme Court Case

[Joey Chalhoub]

While 97% of tax liens are redeemed, the best case for the tax lien investor is when the investor gets the property after the owner does not redeem and the investor forecloses on the property. The investor then gets the property for a few percentage points of the total property value. 

My strategy would be to target properties which are most likely of the owner NOT redeeming. Ideally, these would be vacant and abandoned properties that have not been sold in the past 5+ years. I would target high lien to value properties in class C/D areas that are owned by an LLC.

The supreme court case Tyler v. Hennepin County, No. 22-166, Slip Op. at 14 (May 25, 2023) ruled property owners can reclaim any surplus equity resulting from a tax sale. Does this completely prevent the tax lien holder of getting additional gains after foreclosing? 

It seems like this is already the case in Baltimore. Based on this article (https://www.thebaltimorebanner.com/community/housing/baltimo...) it looks like that out of 41,000 tax lien sales, 1,750 were foreclosed on. Of that 1,750 only 180 claimed surplus funds. 

I am not sure if the supreme court would mean that investors cannot claim surplus funds or if its is only the county that cannot. Isn't it unlikely that a homeowner who cant afford a 2-3k tax bill would even challenge this legally?

Would love to connect with others in the tax lien community

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[Tom Gimer]

@Joey Chalhoub This decision should be read narrowly to address statutory frameworks such as MN where state law permits it to take property to satisfy real estate taxes/penalties/interest, sell it, and keep any surplus outright. That violates the Takings Clause.

MD can be distinguished (in fact MD was mentioned in the decision) in that there IS a process on the books for the foreclosed owner to petition the court for the surplus. Is that process too complicated, yes, but there is nothing in this decision that will prevent a tax sale purchaser in MD from reselling at a profit after obtaining the property by foreclosing the right of redemption.